Martin Alcock, owner and director of the Travel Trade Consultancy on how the travel industry can best survive the Covid-19 pandemic.
Selling travel is a hard slog at the moment. The last few months have been a gruelling war of attrition for those on the front line, doing what they can to survive.
But we’re an optimistic, resilient sector. We know people will want to travel again.
There is a long way to go, and the size and shape of the future travel industry is still anyone’s guess. All we can do right now is keep asking the right questions and be ready to react when the answers reveal themselves.
In this article, we’ve highlighted a few key areas to consider, along with some important questions you should be asking your business.
The first phase of this crisis has been all about survival. Travel companies have been doing what they can to stem the cash outflow haemorrhage. They are issuing credit notes, deferring tax bills, and negotiating hard with suppliers and landlords. At the same time, they have been drawing down government loans and overdraft facilities to provide a liquidity cushion. It’s been high-octane, backs-against-the-wall stuff.
But all of these actions have consequences that will come home to roost. Those government loans might be cheap, but they will eventually need to be serviced. Deferred tax bills will still need to be settled at some point, and refund credit notes will unwind over the coming weeks. The risk to medium/ long term cash flow is much more insidious, and without careful monitoring, cash problems can creep up.
You should embed laser-focused cash flow monitoring into your regular processes. To avoid any nasty surprises you should have a mechanism of tracking actual cash vs forecasts on a monthly or weekly basis, that recalibrates the forecasts based on actuals, along with a feedback loop that investigates variances between actual and forecast (both positive and negative).
The uncertainty of Covid-19, together with a global recession, will inevitably dent confidence. In these circumstances, customers will delay committing to bookings until much closer to their planned departure date. In addition, market forces may dictate lower deposits, later final balance payments or more flexibility in cancellation rights.
Such changes will cause problems with yield management and could well cause pricing volatility. However, they may provide opportunities to win market share. You should explore your ability to capture late bookings, price dynamically and manage your yield in such an environment.
The pain of Covid-19 has rattled around the whole supply chain and your suppliers won’t be immune to the resulting downturn either. Hotel groups may have laid off service staff, theme parks may be struggling to afford maintenance capex, transfer companies may not be able to renew their own business liability insurance.
Vulnerable suppliers could fail, service and satisfaction levels could drop. If you’re a tour operator, packaging up these services, then all of that additional risk rests with you.
Make sure you have adequate systems in place for managing your potential exposure to each of your suppliers and monitoring their service levels. You should also review the terms and conditions you have in place with your suppliers, to ensure they are clear and do not expose you to greater risk than you are comfortable with.
Holding adequate licenses to carry sufficient customers will be imperative to ensuring your business can trade out of the lockdown and ride the bounce back wave. Many Atol, ABTA and Iata holders will find it harder to meet the various regulators’ financial conditions at their next renewal date. You should begin assessing your chances as soon as possible, to identify any potential issues and give yourself as much negotiating time as possible.
It’s also worth thinking about other areas including; marketing, legal, insurance, merchant facilities and destinations. A list of questions to consider for these is available here.
Good luck to everyone. See you on the other side.
The July 2020 issue of ABTA Magazine is out now. In this issue, we consider the impact of two recent government announcements: the reopening of the hospitality sector and the proposed formation of ‘air bridges’. With these policies likely to encourage Britons to travel domestically and to select European countries, can we finally see the green shoots of recovery? Nathaniel Cramp explores Cornwall’s lesser-known beauty spots; Jenny Southan of Globetrender shares her insights into travel in the age of Covid-19; while, the Jamaican tourism board tell us the story of the country’s reopening. Click on the cover to read the magazine in full.