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COVID-19: plotting a course for the travel industry

Yvonne Chappell Yvonne Chappell

The travel industry is experiencing a significant impact from the coronavirus outbreak. Yvonne Chappell looks at how you can prepare for the key challenges that your business may face in the coming days and lists the top three things that you can do right now to help you navigate the impact of coronavirus (COVID-19) on your business.

Understand the travel industry's exposure

With increasing travel suspensions being put in place across the globe as a result of the coronavirus outbreak, the hotel and travel sectors are seeing the impact of a sudden down-turn in enquiries and bookings, combined with an increase in cancellations. In the midst of what is being described as the worst public health crisis for a generation, the sector is facing a potential crisis as bad if not worse than the post-9/11 instability. A sector that exists based on movement, change and flexibility is moving into an uncertain period of minimal activity with no time to have planned for this disruption

Responses to the crisis have varied tremendously. Virgin Atlantic have requested their staff take eight weeks of unpaid leave and have been vocal in their requests for government assistance. On the other hand, John Holland-Kaye, CEO of Heathrow airport, and his executive team have offered to forego their salary for the next three months.

1 The impact on an industry already facing challenges

The UK aviation sector was already competitive, with regional carriers competing against major airlines - such as British Airways - and the big low-cost carriers - like Ryanair and EasyJet. At the same time, average fares have fallen, squeezing margins and leaving no room for mistakes. These challenges highlight the risk of further failures facing the wider travel and tourism industry, such as the recent collapse of Europe’s largest regional airline, FlyBe.

Grant Shapps, UK transport secretary, has agreed to meet with UK airlines to discuss calls for £7.5 billion of emergency support. Rishi Sunak, chancellor of the exchequer has announced further support for businesses hit by this crisis to be provided alongside the existing support available from HM Revenue and Customs. However, with all these existing stresses, how can you best utilise this potential cash boost to deal with the additional pressure of the outbreak?

2 Review travel industry working capital and cash flow forecasting

Many hotel owners and operators are being hit by a significant fall in occupancy levels. In addition, they’re being forced to allow guests to cancel or change reservations with no penalties, causing further liquidity issues.

Companies that have not faced a liquidity crunch before can find the actions needed to change their cash flow management processes overly demanding. However, moving to a receipts and payments basis, daily forecasting and integrating short- and medium-term forecasts almost always increases headroom, runway time to implement other actions and confidence with shareholders and lenders.

3 It's time for the travel industry to explore temporary finance options

A decline in consumer confidence as a result of the coronavirus outbreak is causing many people to avoid spend on leisure and hospitality activities, with bookings and footfall numbers both reported to have dropped significantly over recent weeks. Restaurant, bar and nightclub operators are reporting concerns that they risk severe losses, or even insolvency, if they continue to lose bookings and their core customer base, even if temporarily. With this in mind, the more notice that you can give your debt provider of the impact of coronavirus on trading performance and liquidity, the more chance there is of getting the flexibility you may need.

While new money could be raised from third parties, it will potentially be both expensive and a difficult process. Most often, existing shareholders and lenders to your business should be your priority.

Help and support is available for travel businesses

A number of government initiatives are already available, with more being released as the situation progresses. For the most up-to-date details and information:

The team are available to help with guidance and support on these initiatives and how they can assist your business.

Get in touch with Yvonne Chappell for further support in mitigating your risks during the coronavirus outbreak.

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Responding to the coronavirus (COVID-19)