The big cash squeeze

Covid has left the travel industry’s finances in a perilous state, argues Steve Endacott

In the next 12 months, the UK travel industry faces the biggest squeeze on cashflow that I have seen in my 30-year travel career.

Many companies improved cashflows in summer 2020 by issuing Refund Credit Notes (RCNs) to be utilised in summer 2021, and had hoped for a rush of new bookings as we exited Covid-19 restrictions and outbound travel restarted from May 17.

This is still broadly the roadmap, but the industry is expecting a very limited number of destinations on the government’s ‘green list’, with the mass market Spanish, Turkish and Greek volume drivers likely to be classified ‘amber’.

Travelling to ‘amber’ destinations will be expensive in terms of testing, requiring an outbound PCR or lateral flow test, followed by another lateral flow test 72 hours before returning and three PCR tests in order to use the shorter five-day test to release scheme rather than isolate for the full 10 days at home.

Even with companies offering PCR tests for £60, this still equates to an extra £280 per person in testing costs alone. Customers who are already committed to a holiday may decide to pay the extra and travel, but will customers who have not booked yet?

My view is a firm no, and I’m predicting travel in May and June will only be about 15% of 2019 levels.

Jet2holidays, which has postponed its restart until June 24, seems to agree. To me, this is sensible as it allows the operator to deal with refunds now and prepare for a peak season starting July 1. From this date, I remain hopeful that the UK population will receive a vaccination bonus and travel to most major beach destinations for the school holidays and beyond.

However, I don’t expect the government will update the May 17 traffic lights destinations until June 30, creating uncertainty for airlines and ultra-late booking conditions, which I believe will suppress flight supply down to between 50 and 60% of 2019 levels.

So although summer 2021 may still happen, Refund Credit Notes remain a noose around the neck of many businesses’ working capital, squeezing available cash.

If travel does restart, then suppliers will have to be paid and, if not, customers will need refunding. So it follows that cashflows will be hit either way. Only new bookings improve cashflow and the volume of these is under serious threat.

Low deposit schemes mean summer 2022 bookings only deliver about 20% of the cash flow benefit of a late availability sale, so even a buoyant summer 2022 does not ease the cash squeeze.

It can be assumed that working cash will be lower than normal entering the quiet winter months, and this is likely to be when travel business failures peak.

The biggest squeeze on cashflows yet to impact is being imposed by the Civil Aviation Authority (CAA) which is tightening ‘trust fund’ rules markedly, with agents’ commission no longer payable until customers return under the new ‘golden trust’ we expect to be forced on the industry.

In September, the CAA will try to force mass market tour operators like Jet2holidays and easyJet holidays into the same trust fund structure already imposed on Tui. This will cause a massive squeeze on their working capital as their tour operating divisions will not be able to pay for flights on booking, with cash only released on customer return.

The big airlines clearly have better lobbying and power than most travel companies to fight this but, legally, the CAA is forced to operate a level playing field and it’s difficult to see how such a move can be avoided.

Debit and credit card merchant acquirers are also nervous about the travel sector, with some pulling out completely and others holding on to cash for longer as a buffer against potential refunds resulting from further Covid-19 disruption.

It may not be a ‘perfect storm’, but the Covid-19 pandemic has left the travel industry’s finances in a perilous state, with many factors creating a massive squeeze on the lifeblood of business, cash!

It’s not all doom and gloom, but we have a rocky ride ahead of us over the next 12 months as we try to ride out the big cash squeeze.

Is it selfish to go overseas on Holiday this year?

The Sunday Times at the weekend reported on a UKGov poll showing that 76% of people thought it worth sacrificing overseas holiday, to keep the UK unlocked.

So as an industry should we listen to our customers and supposed “Experts” to stay shut, irrespective of the financial damage done?

But when did it become an either/or in terms of overseas holidays or a safe UK?

Of course, if you ask customers a question phrased in this way, who wouldn’t vote to stay unlocked?

Where is the evidence that travel represents such a massive risk to a vaccinated population?

Sorry, but it’s not been presented and instead, we have just had scientific posturing and the usual “drip, drip, drip leaks” from Government officials. They are clearly trying to set public expectation, even though the full travel review will not be issued to the trade until the 12th of April.  Truly frustrating, given the devastating impact on forward bookings it’s had.

As an industry, we need to demand a “Risk-Based” approach with clear rules stating the criteria to be used in deciding risk levels and how destinations will be allocated to Green, Amber airbridges and Red no go zones.

Fortunately, the Government last summer recognised the need to operate airbridges at a destination/Island level, rather than illogically applying blanket countrywide rulings, when location like the Canaries are nowhere near Mainland Spain.

In my opinion, the best the industry can hope for in terms of short-haul travel is to keep the Balearic, Canaries and Greek Islands in green/amber zones, as it’s unlikely travel will be possible to mainland Europe if a third wave of Corona Virus continues to take route.

Few customers will want to travel to the destinations, where Covid restriction’s reduce restaurant or bar opening hours, as the whole point of a holiday is to escape and enjoy holiday life. The Governments biggest Covid travel policeman will be customers themselves.

Scientists tell us that a fist vaccination jab gives 65% protection, which increases to 90% after a second jab. As the UK has seen, increasing vaccinations levels dramatically reduces the death rate and the rate of Covid-19 spread.

Most holiday destinations will welcome UK customers with either a health passport showing 2 jabs or a negative PCR Test.

Using simplistic maths, if we take an average Vaccination protection of 75%, then 25% of customers carry some risk of infection and therefore it is important to limit Green destination to locations that have similarly low infection rates. However, imposing rapid flow tests 72 hours before return and again after 5 days of quarantine, should allow a much larger range of amber destination to go on sale, as the combination of vaccination and testing should provide a high degree of protection against importing Covid.

The Government righty fears Covid mutations resistant to Vaccination, however as demonstrated by the highly contagious Kent mutation, most aren’t resistant and like flu, we will have to amend the vaccination and continue to vaccinate the county against new strains each year.  

We cannot be locked down by a fear of the unknown when that unknown is going to be with us forever.

Politicians’ behaviour is driven by public opinion and if we allow Government to drive a fear led agenda without challenge, we will stay closed until at least August. It’s time to fight fear, with a “risk lead” approach using, logic and science, but balanced by economic damage.

As an industry, we need to remove the stigma of going on holiday being a “selfish” act, by embracing testing and minimal quarantine as the key ways to protect against imported Covid outbreaks. Expecting large amounts of “Green” airbridges requiring nothing more than a Vaccination passport is not realistic for Summer 21.

This summer, let’s be clear that overseas holidays are a “life or death” issue for large swaths of a travel industry that desperately needs some summer 21 cash to get through the dark winter ahead before we enjoy a travel bonanza in Summer 22.

The changing shape of the UK outbound holiday market in a post-Covid-19 world

The UK industry hopes to re-start its holiday programs this Summer, with optimist still hoping for May/June and realists predicting a July 21 restart, as UK restaurants and pubs re-open.

 However, “3 tests to travel” will remain a requirement, as will robust plans to deal with further disruption from new Covid-19 variants.

 This fear of further Covid-19 disruption is likely to hamper the re-start of “Dynamic Packaging” for some time, forcing agents to sell holidays from the large integrated tour operators like Tui, Jet2 and Easyjet Holidays, as these ATOL bonded principals take responsibility for all refunds or holiday amendments, if further Covid -19 disruption occurs.

 Large OTA’s like On the Beach, Love and Travel Republic have the scale required to secure cost-effective public liability insurance and can afford to self-Insure “Supplier failure cover” by using virtual credit cards to pay suppliers which allow relatively quick and easy reclaims.

 However, the dramatic reduction in the “public liability” market and the complete disappearance of “Supplier Failure Cover”, make Dynamic Packaging by high street shops or retail consortia much more expensive and higher risk.  Given an alternative, retails would much rather sell packaged holidays from third parties.

 Customers who have been hit by the need to cancel, rebook or shift holiday several times, are likely to return in greater numbers to high street agents or higher human interaction booking routes such as homeworkers.

 If the major tour operators are sensible, they should benefit from high street agents and homeworkers turning to them this summer, but I fear that an ultra-lite booking market and excess seats over demand, could easily lead to the majors blowing their new alliances by undercutting agents with lower online prices.

 Holiday prices will also have to increase, as a badly depleted ATOL fund, looks to reduce risk further via trust funds or charge larger per passenger fees where it can’t.

 The CAA is trying to push ATOL holders away from “Bonds” towards “Trust Fund Models” with varying degrees of restrictions on how funds can be released before customer return from holiday. The more restrictions an operator accepts, the lower the cost, with rumours flying around of ATOL fees of up to £20 per person if operators do not reduce the CAA’s perceived risk via trust funds.

 How this will impact low-cost airlines holiday divisions is not clear, as the dominant airline division will not be happy if it does not receive payment in full on booking. Like all negotiations, it’s a balance of power and the CAA would not want the airline to abandon selling packages in favour of encouraging more customers to DIY unbonded holidays.

 I think existing fully bonded “Specialist” operators that survive Covid closure and new entrant’s, such as the Russian backed “Biblio Travel”, initially a specialist to Cyprus, could grow rapidly if they package a wider range of destinations for agents and remain trade focused.

 Secondly, there is also the need for a large-scale trade “Flight Only” operator, as many agents will now shift to selling unbonded accommodation to customers and then after a delay of 24 hours, help them book the flight element, as an agent of a third party to avoid selling a “package”.  Bluntly, the cost and risk of “bonding” a package in a Covid-19 disrupted world, outweighs the extra margin, so many agents are asking “Why do it”?

 Obviously, Goldmedal is best positioned to continue to dominate the trade flight only sector, but it may need to start “brokering” seats on charter aircraft, operated by “downstream” airlines from places like Turkey.

 One airline that will definitely see less trade support from dynamic packaging retailers is Ryanair!

The UK travel trade has always had an uneasy relationship with Ryanair, but after the refund fiasco where Ryanair has clearly tried to send many agents bust, by refusing to refund agency made bookings, the relationship is now openly hostile on both sides.

 Summer 22 should see a strong return to early holiday sales, as pent-up demand is finally released, with fully bonded package operators likely to benefit the most, led by Jet2 Holidays and Easyjet Holidays dominating the “mass market” beach sector and supported by a larger range of “small to medium” sized specialist tour operators, as agents reduce “dynamic packaging” efforts in favour of lower-risk commissionable business.

 Whether Tui can struggle out from under its debt mountain, which looks likely to destroy its ability to operate “differentiated” holidays, is another question altogether.

 What is sure, is that the 2022 post-Covid-19 outbound holiday market, will look a lot different from the one we entered the crisis with

Ministers shouldn’t be telling us not to book summer holidays

Logic dictates that a large-scale outbound market is possible by July, says Steve Endacott

The government undoubtedly has a tough job of balancing saving of lives with economic damage and restrictions of freedoms. On the whole, I think they have done a good job and, like most people, am fully supportive of the current lockdown and ban on overseas travel.

However, I take great exception to ministers telling the public it is too soon to book an overseas holiday for this summer and saying that they are planning a British holiday to Cornwall.

Obviously a domestic break versus an overseas trip is an individual choice, but ministers are massively underestimating the pent-up demand for overseas travel and the reasons behind it.

Holidaymakers like to book well in advance, so they know they have holiday dates booked off work and, more importantly, something to look forward too. That has never been truer than in a Covid-19 world, where we have been in full or partial lockdown for most of the last year and most people have missed out on last year’s annual holiday abroad.

People choose overseas holidays over a UK staycation because they have a much better chance of getting a week of sunshine – and the cost of hotels, eating out and drinks are much better value. How many all-inclusive options that cater for a fixed holiday budget can you find in the UK? Not many.

The impact of Covid-19 has also increased the gap between the ‘haves’ and the have nots’.

If you’ve worked from home through lockdown on full salary, you will have greatly-enhanced disposable income to spend on holidays this year. The average saving level for this sector has risen sharply as spend on commuting, going out and buying clothes have all fallen. This should lead to a boom in more expensive “holidays of a lifetime” to exotic destinations, as people who have woken up to their own mortality start ticking items off their bucket lists, or decide to upgrade their holidays.

Conversely, many people have been furloughed and will have to budget even more carefully if they are to afford overseas holidays. This may lead to a boom in sales to cheaper destinations, like Turkey, or maintain sales of all-inclusive hotels which otherwise look set for a decline due to Covid-19 restrictions and increased delivery costs.

However, all this is irrelevant if the UK Government does not re-instate the ability to travel and also loosen current testing and quarantine rules.

We know that, by the end of February, the majority of the ‘at-risk’ sector of the UK population will have been vaccinated and, by the beginning of the summer holiday season, most over 50s should also be covered. Scientists tell us that vaccinating those two demographics should cut the death rate from Covid-19 by 90%.

Politicians’ policies are invariably based on what will get them re-elected, and therefore when the death rate is cut to 10% of current levels the pressure to move to a ‘living with Covid-19’ phase will become overwhelming.

In this phase, the balance swings to reducing economic damage and lifting restrictions on public freedoms, such as going on overseas holidays.

So, I expect holidays to start again in May 2021 – but inbound testing and quarantine restrictions imposed by the UK government not to be relaxed until July or August, in time to allow UK citizens to travel on mass during UK school holiday peaks.

Therefore, unless new strains overcome vaccinations, logic dictates that the UK government should allow us to go on an overseas holiday this summer. Even if ministers say it’s too soon to book.

But don’t assume all holiday destinations will be letting us in!

The majority of UK holidaymakers will still not have been vaccinated by summer 2021, and the UK may still be living with relatively high infection levels within younger people, who suffer less server symptoms, just as we live with flu.

As we know, Europe as a whole is behind the UK with its vaccination rollout, and some popular but poorer holiday destination such as Turkey may be even further behind and still in the ‘containment’ phase.

It is therefore likely that Covid-19 testing will remain a requirement this summer, with it unlikely that travel corridors removing the need for outbound and inbound testing are reinstated.

As I’ve said before, it’s crucial the cost of testing comes down – and access to government testing capabilities would help greatly. However, having extensively researched the private testing sector in recent weeks, it’s apparent that aggressive directional selling by the travel industry can dramatically push down testing prices, and I’m more relaxed this obstacle can be dealt with.

In my opinion, by July 2021 large scale overseas holidays will be possible – and we can start moving from survival to profitability as an industry.

But, like any Covid-19 prediction, the road to recovery remains fraught with risk due to unknowns.

January Travel Sales? The only certain thing is uncertainty.

Most industry observers are expecting January sales to be only 30-40% of traditional levels because although the news of a Vaccine is a massive boost to consumer confidence, too much uncertainty remains over the speed of the vaccine role out and access to low-cost testing to allow travel.

With hundreds of aircraft sitting on the ground and Jet Aviation Fuel being 37.8% cheaper year on year, flight capacity will return rapidly for Summer 21 once demand returns, creating an “Ultra Late” market for holidays. However, low-cost airlines models yield models are based on low early prices establishing solid load factors before the “lates Market” i.e. within 3 months of departure and natural caution is likely to lead to capacity remaining at 70% of 2019 levels. So less overseas holiday will be sold in 2021 compared to 2019 peak volumes.

Travel companies January marketing will have to change to reflect changes in the mix of customer types booking and the types of products demanded. However, there are so many variables at play, it’s hard to predict these changes with any certainty, requiring a “measure and react fast” policy.

A key impact cutting across all passenger types is the increased differential between the “Have’s” and the “Have Not’s”.

The impact of Covid-19 lockdown measures have not been felt equally across all industries or employment sectors. If you have been working throughout Covid-19, you will now have increased disposable income having spent less in lockdown and have a large number of holiday days left to use. However, many people have been furloughed or made redundant, making these customers unlikely to be in the holiday market this year.

There are a few trends that can be predicted however

Families. Traditionally, 60% of January sales come from families booking early to secure the right hotels during school holiday periods. With the costs of Covid-19 tests currently at £120 per person per test, it’s hard to see families booking in January, as the combined cost of inbound and outbound tests, in theory, could be as much as £960 per family, which is just untenable for a mass-market beach holiday.

Older customers. Ironically, this could be the first market to return to booking, as they have the greatest certainty of being able to get a vaccination and have been locked down the hardest over the last 9 months. Covid-19 has reminded us all of our own mortality and the importance of enjoying life while we are healthy enough to do so but apply this to an age group with the finances and time to travel and you can easily see surge in bookings from this sector. Cruise is the obvious beneficiary but watch out for growth in demand for destinations like Cyprus, Malta and Benidorm that have older customer profiles.

Couples. Test costs are lower and potentially bearable, so depending on economic circumstances this group should be willing to book and will make up a higher percentage of the reduced January booking levels.

Younger people. This sector remains the most Covid confident, as the health impacts are much lower, but their disposable income is lower and the need to book early is minimal. Why would they book in advance when they are being told that there will be plentiful late availability?

I personally believe that “Lockdown” levels may also impact consumer phycology and introduce a further potential regional impact on demand. If you are in Category 3 and cannot socialise with friends outside the house, in pubs or restaurants, you are a lot less likely to discuss holiday plans. Historically this has been a big driver in the “Dream” stage of deciding where and when to go. How often have you booked a holiday because you heard friends talking about their holiday plans?

Predicting changes in destination mix is equally hard, as the unpredictability of “Quarantine Corridors” is a nightmare for the travel industry and customers alike. Even with a reduced quarantine period of 5 days with a test, quarantine corridors will have a massive influence on demand and simply cannot be predicted with any certainty in advance. Therefore, it’s hard to predict what changes in destination mix we will see until January bookings start coming in.

However, it is likely that the demand for self-drive holidays and staycations will remain high again in Summer 21, given its unlikely that the majority of the holiday taking population will have been vaccinated by summer and Covid-19 avoidance may remain front of mind.

The phrase the “the only thing certain, is that nothing is certain” has never rang truer.

Vaccine Bounce. When will Travel see it?

The announcement that a Covid-19 Vaccine, will start being rolled out by Christmas gave airline shares a massive boost this week, with British Airways share price improving by 40%.

The city clearly sees this as the “beginning of the End”, which is great news for the Industry, but will customer confidence bounce as fast?

Early signs are positive with many retailers, particularly those in the luxury sector, reporting a strong surge in bookings as more affluent customers, with money in their pockets and frustrated by disrupted Summer 20 holiday plans, make up for lost time with early bookings so Summer 21.

However, I still fear that the demand for “mass market” beach holidays will not return until we can reassure customers over the availability and price of Covid-19 tests.

The focus for the first wave of vaccinations will be older people, the medically vulnerable and health workers. It is highly likely that the bulk of “package” holiday makers will not have access to a vaccine until the summer at earliest and even when they have, we still have no idea how “health passports” will be issued or accepted by other countries to allow entry without testing.

Therefore, I think the travel industries focus should remain on implementing a low-cost testing infrastructure.

As a board member of the ITT, I have been able to put forward a question to be asked during the house of Lords debate on travel this week. Basically, it is a request to allow holiday makers access to the Governments PCP testing stocks, if they are willing to pay a £25 fee to have a test prior to travel and one on return to shorten quarantine.

Most holiday destinations are following the example of Cyprus, Dubai and now the whole of Spain in requiring visitors to take a test within 72 hours of arrival.

The cheapest private test available currently cost £125 (Although, TUI customers have access to a negotiated bulk discount) and cost escalate rapidly if you need a “last minute” test, which by definition of the 72-hour rule prior to departure, is a major issue for holidaymakers.

A cost of £250 per couple or £500 per family is a massive deterrent to booking a holiday. I have no doubt that by the time we get to the summer the availability of testing will have increased and competition will have forced down “Rip off” pricing levels. But only the Government has the stocks required to give holiday makers the certainty of access they need to book in January with any confidence.

In reality few people under 50 are still scared of Covid-19 as the low death rates and the relatively mild impacts on people they know provides reassurance. However, many like myself, still have elderly parents or vulnerable friends that dictate a cautious behaviour set, as they cannot risk catching Covid-19 and passing it on.

Once these vulnerable groups have been vaccinated however, I expect the clamour for a return to a normal life, including overseas holidays will surge. At this point the acceptance of illogical blanket quarantine rules will also be heavily challenged.

Due to peer group pressure and social responsibility, I twice returned early this summer from holidays to avoid being quarantined for 14 days, even though I was returning to Rochdale which had a 10 times higher infection rate than the destinations I was returning from.

I’m not convinced the Government will convince me or anybody else to comply with these idiotic blanket rules once the vulnerable are protected, again leading to a surge in demand to get away.

Strong holiday demand for Summer 21 is coming, but I think it will be an ultra-late market still.

Is dynamic packaging worth it post Covid-19?

Extra profit does not justify the risk, says Rebound Consulting’s Steve Endacott

Although the large majority of Atol applications were renewed on September 30, it is noteworthy that 176 companies, or 20%, did not renew this time.

The expected sharp decline in the use of retail consortia Atols will, however, be less visible.

Readers may remember that I fought hard against Abta’s acceptance that flight-plus Atols should be replaced with full Atols for agents as part of the implementation in the UK of the European Package Regulations. I argued that, unlike traditional tour operators, travel agents did not control the airline supply and should not be held liable for the airlines’ actions as the Atol ‘principal’, or organiser of the package.

My fear at the time was that the financial risk the agent was being forced to take on was unreasonable, as the new rules – in place since 2018 – make them responsible for the replacement of any flight element of a package if an airline failed.

I felt it was illogical for customers to be able to buy unbonded holidays on the same flights using Google and accommodation providers like Booking.com, but as soon as a travel agent or homeworker was involved the transaction needed to be bonded. The extra cost, and risk, of agents bonding would make agents less competitive on price compared to customers DIY booking themselves, creating an even bigger unprotected market.

This disadvantage, in recent years, has been exasperated by what is bordering on an abuse of power by low-cost airlines in terms of the point of sale booking fees they impose on travel agents, but not direct customers.

For example, EasyJet demand a whopping £12 per person per return flight to book over their API, which amounts to £48 for a family of four. There is no technical reason for this charge as the cost of the fare when booking over an XML API is exactly the same as customers booking on a website.

In reality, the charge is aimed at making sure the airlines get a large chunk of the agents’ DP profit and at the same time make their own in-house tour operations, who don’t pay this fee, look more competitive on price.

EasyJet are not alone in this behaviour, with Jet2.com constantly changing its point of sale fee, seemingly based on flight demand. Ironically, this pushed a lot of agents to book flights with Ryanair, which has not provided a chargeable access point because it doesn’t recognise agents’ right to book flights and knows agents can screen scrape or manually book on their site.

Heavy use of Ryanair has backfired on many agents during the massive disruption caused by Covid-19, with Ryanair making it as difficult as possible for agents to reclaim monies for cancelled flights.

Ryanair has clearly prioritised direct refunds over the claims of customers who have booked via agents because when the customer loses patience they will recharge the merchant who cleared their card, so the travel agent and not Ryanair.

Agents who operate trust funds are faced with another major issue as trust fund rules state that customer funds cannot be released until the customer returns from holiday.

Historically, agents have used a combination of low-cost insurance policies and virtual cards, which provide reclaim protection, in order to pay low-cost carriers on booking. However, the insurance markets are no longer willing to back the financial security of any of the major low-cost carriers, because they believe the bigger you are the harder you’ve been hit by Covid-19. This leaves agents reliant on virtual cards and the recharge route which, although highly effective in the case of airline collapses such as Monarch and Thomas Cook, has been much slower in forcing refunds for cancelled flights.

Given the constant chopping and changing of FCDO advice and quarantine restrictions in summer 2020, the extra profit available from dynamically packaging probably does not justify the extra risk of agents using their own Atols in 2021. So expect a large surge in bookings for Jet2holidays, EasyJet Holidays and companies like On the Beach, who provide a bonded dynamic packaging platform via trade brand Classic Package Holidays.

Ironically, this may come at the expense of Ryanair, which may yet regret trying to close down travel agent operations since its poor customer service record makes it unlikely that holidaymakers will trust the airline with their full holiday booking.

So having been at the forefront of the growth of dynamic packaging, I am now forced to advice that for anybody but a large online travel agency, the risk may now be too great to make it worthwhile.

Time for ‘deep hibernation’

The government confirmed the end of its ‘stay at home’ furlough scheme last week and the introduction from November 1 of a Job Retention Scheme aimed at saving “viable” jobs.

As long as you can provide staff productive work for 33% or 1.65 days a week and pay them “full salary for this time”, the government will help you retain staff by paying a further 22% of their salary as long as the employer matches this amount.

This is a good deal for employees as it means they get 77% of their normal salary for working a very short week, but at first glance may be less attractive to employers who are paying 55% of normal wages.

In the travel sector, ‘Quarantine fear’ will kill forward bookings for summer 2021 which, combined with airline capacity cuts of around 60% for winter, means travel companies will struggle through the winter with sales at around 30% of last year’s.

I am hopeful a rapidly expanding Covid-19 testing capability, driven by new low-cost saliva-based testing will allow the government to replace 14-day quarantine with two-stage Covid-19 testing.

However, this or a vaccine is unlikely to be in place until March-April, meaning Summer 21 will be an extremely late-booking market and survival until then becomes the absolute priority.

I, therefore, recommend travel companies go into a ‘deep hibernation’ and reduce costs as much as they possibly can, until demand returns hopefully from April 2021 onwards.

For online businesses, things are relatively simple as their platforms automatically scale down and then right size when demand returns. Life is much more complex for high street shops and homeworking networks.

The gamble is how many experienced sales staff can you afford to retain during the hibernation period in order to be ready for a surge when it comes?

This will vary depending on the financial health of travel companies and their attitude to risk.

The most conservative approach would be to cut staff by 70% to match demand and simply assume there will be plenty of unemployed staff waiting for jobs when demand comes back.

However, companies which value the expertise and loyalty of their staff will take advantage of the government scheme and rotate three staff to complete one full-time equivalent’s hours.

Yes, this will cost them 165% of a normal person’s salary, but it will give them an expandable, well-trained and loyal staff base to exploit the upturn.

 Unfortunately, to afford this extra expense, companies will have to cut elsewhere. The brunt of redundancies and cuts this time around will have to come from those closest to the people in charge i.e. directors and senior managers who may have been with the business for a long time.

These are the hardest people to let go. But, brutally, if you have fewer staff to manage, you need less management.

Travel Companies are also under a great deal of pressure to process remaining customer refunds, with most having received letters from the Competition and Markets Authority (CMA) and heavy hints that the CAA will not be renewing licences unless refunds have been paid.

Unfortunately, these same bodies seem less able to pressure airlines like Ryanair which are clearly making agents lives a nightmare when trying to obtain clients’ refunds.

Given the high proportion of businesses backed by venture capital (VC) or private equity in the travel sector, it was great news that the government has extended access to the coronavirus business interruption loan scheme (CBILS) to VC-backed businesses.

It also extended repayment timescales to 10 years, dramatically reducing short-term payments.

It’s going to be a tough winter, but those companies which can go into deep hibernation will emerge to a travel sector with reduced competition and a large amount of pent-up consumer demand.

“Redundancy Day” Looms large for Travel Companies.

The end of Furlough is looming large and unless the Government announces a major job retention scheme in the next two weeks, at the beginning of October millions of people will be given one month’s notice to ensure the Government effectively subsidises notice periods with furlough pay and employers only have to pay statutory redundancy.

I fully accept that the Government does not have bottomless coffers and support the end of a “furlough” scheme, which effectively incentives staff to stay at home. However, for sectors like travel, which have been put on hold by Covid-19 for the foreseeable future, a scheme to allow employers to keep staff on their books until a rebound is essential.

Why not take the average cost of unemployment benefit and pay it to employers as long as they also contribute to top up staff salaries? To avoid abuse and the advent of artificially subsided wages, only staff currently on furlough should be considered for such a scheme, as it needs to be about retaining jobs and not creating new cheap labour for employers.

The % amount of a salary this represents will obviously vary between employee, but it is likely to be only 60% plus for lower-paid staff. However, I know plenty of travel agents who would love the opportunity to stay in the industry during this downturn, if they could get paid a sensible amount more than sitting on the dole.  

Some staff may be able to get better-paid work elsewhere, but post-November if nothing is done, many more will remain unemployed and unproductive.

When it comes to senior staff the subsidisation maths simply does not work and many employers are now faced with a second wave or redundancies where nobody is safe.

Senior staff who seemed indispensable at the start of Covid-19 are now expensive liabilities that many businesses can no longer afford. Too many businesses have got rid of the doers and are now far to top-heavy with managers.

As an industry, we have to face that fact that “Quarantine Fear” will cause January sales to be 40-50% of last years if we are lucky and an upturn will only come, when and if, two-stage airport Covid-19 is recognised by the Government as an alternative to 14-day Quarantine.

Many businesses if they are to survive, need to go into an even deeper hibernation in order to retain enough cash to survive until an upturn hopefully comes next summer, but also plan for a scenario where it does come for a further 18 months.

Firms need to follow the example of innovators like John and Irene Hays, who have secured lucrative Government contracts to operate Covid-19 testing hotlines and track/trace calls. Those contracts may now be tied up but turning your expensive staff into part-time consultants for non-travel sectors is a possibility, particular regards IT programmers and senior customer service managers used to driving efficiency in large call centres.

Also consider noncash mergers with rivals to combine overheads and customer bases or as a last resort a “pre-packing” the business to save as many jobs as possible, if you’re facing the precipice of bankruptcy.

It’s time for tough decisions and I know from personal experience that writing a blog is a lot easier than having to take the actions required.

I can only wish all of today’s industry leaders the best of luck, during these torrid times

Covid-19 Youth Rebellion is coming.

I remain amazed that young people, who have virtually nothing to fear from Covid-19 have allowed the older generation to disrupt their lives so greatly with Covid-19 restriction.

Firstly, we locked down the country entirely, with everybody confined to home for weeks with only essential shopping and limited exercise allowed and only gradually have we opened up restaurants, pubs and gyms, with nightclubs and Universities remaining in short term lockdown.

Away in Croatia last week, ahead of its imminent shut down I spoke to a group of 20-year olds, who seemed surprised at my questions about a youth rebellion.

One commented “Mate, why would we rebel when we’ve just had 4 months paid holiday to laze around the house. I’m back to work now, so all’s good”.

It will, however, be interesting to see if attitudes harden once Furlough ends, millions are added to the dole queue and the toughest economic recession of our life takes a grip. Unfortunately, it’s the less experienced younger workforce who are set to be hit hardest.

At the moment the government has been able to balance unpopular lockdown decisions with billions in giveaways, including CIBIL loans, rebound loans, eat out to help out schemes and tax cuts on housing stamp duty. But the “Cookie” jar is nearly empty and tougher days lay ahead.

The Travel Industry is also beginning to rebel, with holiday insurance being extended to allow travel “against FCO advice” for the first time ever to a mass-market holiday destination. Rock Insurance received numerous requests for such a product, but initially, the insurance underwriters were reluctant to go against the UK Governments clear desire to stop overseas holiday this year. However, Airlines continue to fly to destinations against FCO advice and there is clearly a need for customers to be insured.

Some OTA’s are also taking the stance that FCO’s advice is just that “Advisory” and continuing to operate holidays to destinations like the Balearics and Canaries, which statistically have lower R rates than many parts of the UK.

I understand the Governments desire to prevent the creations of a second Covid-19 spike in the UK from returning holidaymakers, but think it’s highly hypercritical to take a regional approach to lockdown measures in the UK, but insist on blanket 14-day Quarantines across the whole of Spain when the Balearics and Canaries as separate Islands clearly have Covid-19 under control.  Unfortunately, politicians don’t like admitting to having made mistakes and we will have to wait a few more weeks before the Government quietly adds these destinations back to the Green list, even though absolutely nothing will have changed.

It is the “Fear of Quarantine” that its likely to do the most damage to the UK travel industry, as I fear it will devastate forward bookings for Summer 21 in January.

If you’re a holidaymaker, why are you going to book early and take the risk that a destination will or will not be quarantined when your due to depart?

I think the best possible solution is for the Industry to implement a recognised and app certified “cross-industry” testing certificate that allows customers to leave quarantine after 5 days. This would require Airport testing, with a further test at home 4 days later. From my own investigations, it would appear that 30-minute airport testing is now available for as little as £15 per person and home testing or local pharmacy testing will shortly be rolled out. However, the scheme needs to be recognised by Government and therefore must be back by industry bodies like ABTA.

Instead of focusing on price this January, we need as an industry to focus on removing “Quarantine Fear” and providing booking flexibility that allows customers to move holiday destinations free of charge if they have any Covid-19 related fears.

Rather than wait for Government to act, we must apply self-help and move forward fast with a single industry solution that allows an effective alternative to the killer 14-day Quarantine.