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.

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