The Travel Industry and the Effects of Covid-19
Our Insolvency Practitioners Report that Urgent Support is Needed from the Government
In this article our insolvency practitioners turn their attention to how the travel industry in the UK is being affected by Covid-9. The UK travel industry is facing a crisis of unprecedented scale, which is causing severe financial difficulties for hundreds of travel businesses – many of which were healthy and profitable until a few weeks ago – and many thousands of their customers. This could lead to many failures in the sector, causing ABTA to call for urgent support for the industry from Government.
We look into ABTA’s call in more detail in this article and Simon Parker from our London office summarises some of the key issues currently being faced by travel companies.
The Package Travel Regulations – the 14 Day Refund Requirement – is Causing Huge Pressure on Cashflow
The most pressing issue facing the industry right now is that under the Package Travel Regulations (“PTR”), Travel Companies must refund customers within 14 days of their holiday being cancelled. Most if not all other European countries have temporarily abandoned this requirement citing the exceptional circumstances and telling the customer to accept a voucher instead.
In most cases, UK Travel Companies will have already paid the airlines and hotels for cancelled travel. The airlines and hotels are not refunding the Travel Companies, so the 14-day refund requirement is putting huge pressure on cash flow. We see this as the most pressing problem for Travel Companies right now.
ABTA has Called on the Government to Abandon the 14-day Refund Requirement
On 16th March ABTA called on the Government to abandon the 14-day requirement, and made several other key requests as part of its Save Future Travel campaign, including:
- That tour operators should not be responsible for providing refunds if these costs are not covered by the suppliers (e.g. the hotel or airline). Where those suppliers cannot or will not refund, there needs to be an emergency government consumer hardship fund to fulfil refund payments.
- That the 14-day window in the Regulations for refund payments should be removed.
- That refund credits should be allowed as an acceptable alternative to cash refunds, with all protections carried forward as part of the refund credit.
- Urgent action to enable the provision to all sizes of business of loans that the Chancellor and Bank of England recently announced, with the access mechanisms for these loans made clear.
- A suspension of Air Passenger Duty, the saving of which to be passed onto the consumer to help the sector to recover at the earliest opportunity.
- Immediate deferment of HMRC payments for a period of six months in order to support cash flow.
At the time of writing (15th April) there has been no specific support for Travel Companies announced by the Government.
As Mark Tanzer, ABTA’s Chief Executive has said:
“The evolving coronavirus situation is causing immense damage to UK travel businesses. I am calling for urgent action today by the Government to make money available to travel and tourism companies and to make temporary changes to existing package travel regulation. Without this action, we risk healthy travel businesses going bankrupt, thousands of job losses across the country and customers losing money.”
As things stand, the only positive thing that can be said is that those UK Travel Companies who have managed to persuade their travellers to accept a voucher will have some cash in the bank, which will give them some degree of breathing space.
What About Wages?
The wages bill for Travel Companies is another key issue, especially with call centre staff unable to take bookings from home. Furloughing, and the Government’s job retention scheme will obviously help, with most if not all within the £2500 per month limit. However, much of the travel industry is made up of mainly low paid employees who may struggle with a 20% pay cut.
Will the Coronavirus Business Interruption Loan Scheme (CBILS) Help?
As we have commented in an earlier article, one of the key requirements for making a successful application for a CBILS loan is that the applying business was in good shape before the start of the Covid-19 crisis.
Sadly, some UK Travel Companies were already in poor shape coming into Covid -19. Some of the main reasons for this include: the uncertainty surrounding Brexit and the disruption to travel caused by storms Dennis/Ciara that hit hard. In addition, the volatile £ has also left some companies nursing currency losses.
Poor recent figures will create problems for Travel Companies when accessing the CBILS scheme, which is another reason for the Government needing to listen to ABTA and the specific needs of the Travel Industry.
As a final comment, Travel Companies need to renew their Air Travel Organisers’ Licence (ATOL) each year. Depending on year ends, ATOLs are renewed at the end of March or September when the Civil Aviation Authority (CAA) assess a Travel Company’s financial health. The March renewal deadline has been put back to 28th April, and we wouldn’t be surprised if this is put back further. The likelihood is that this will be a trigger for some business failures.
Without Government Help the Outlook for Many Travel Companies is Very Bad
We are aware that Governments have already acted in many other countries, including France, Italy, Belgium, Spain, Germany, The Netherlands and Denmark, where temporary changes have been proposed to existing regulations that are not fit for purpose in the current climate. However, the UK Travel Industry is still waiting for a response from our own government. Until a specific support package is announced, it is likely that the outcome will be many insolvencies.
Is There any Better News?
There is some evidence that those Travel Companies that are in stronger financial shape are taking bookings for 2021, whilst Business Insider reports that cruise bookings are up for next year despite the horror stories of the last few months involving stranded cruise ships. It is likely that this is because, despite stock market falls, some of the wealthy and/or retired will not have had much to spend their cash on recently and will be looking forward to a long and expensive holiday, assuming fears of the virus have eased into 2021.
Other than this, there is very little good news in the travel sector right now, and we await the Government’s response to ABTA’s Save Future Travel Campaign.
Contact our Insolvency Practitioners for Help and Advice
The travel industry is a very specialised area of insolvency and require Insolvency Practitioners with knowledge of, and expertise in, the sector to be able to deal effectively and quickly with the challenges, as detailed in this article.
Our Insolvency Practitioners are experienced in Travel Company insolvencies. Antony Batty & Simon Parker have been dealing with travel company insolvencies for over 20 years. Appointments have included: Selsdon Travel Limited, Pinnacle Travel Limited, Hotel Connect, Global Enduro Limited and Sun4U Limited, as well as the administrations of Diamond Short Break Holidays and, most recently, Fairlight Jones.
The key is always to act rapidly and decisively, especially in situations where customers are stranded abroad and need repatriating. If we can, our first aim is to preserve companies in financial trouble, usually through an administration. If this isn’t possible, then our aim is to preside over as orderly a liquidation as possible.