More UK budget travel companies are further facing insolvency after a combination of the economic downturn, volcanic ash, bad weather and strikes, which has resulted in a sharp fall in holiday bookings this year.
Kiss Flights – who sold holidays to Greece, Egypt, Turkey and the Canary Islands – went into administration on Tuesday becoming the seventeenth UK travel company protected by a customer protection scheme to go out of business this year, according to the Civil Aviation Authority.
Another 33 companies under the same scheme failed last year and the total is expected to be higher as not all travel companies are protected by Air Travel Organisers’ Licensing, which ensures that customers are compensated for any money paid and repatriated to their homes.
Travel companies have been hit by several factors.Holiday bookings have been hit by the economic downturn, a volcanic ash cloud closed most of Europe’s airspace for over a week during April and continued to cause havoc in May. The freezing weather in January led to flight cancellations and labour disputes have hit flights at British Airways PLC and threatened disruption elsewhere in the airline industry.
Kiss Flights announced that it hadn’t been able to pick up enough bookings to cover its overall costs due to the ash cloud that drifted down from a volcano in Iceland which caused chaos for travellers in April and May.
“On top of the poor yields and very late booking trends, our fate was sealed by very poor forward sales,” said Gary Ash, chief executive of Flight Options, Kiss Flights’ parent company.
Airlines and travel companies were forced to pay millions to passengers for the disruption caused by Icelandic ash cloud as well as costs of looking after repatriating stranded passengers.
TUI Travel – Europe’s largest tour operator – said that the total impact of the volcanic ash on its revenues was GBP105 million.
TUI could afford the hit as it made GBP3.4 billion in revenues in the three months to June 30th, a 4 per cent decline from last year.
The company warned that bookings were down 2 per cent since May 11th and that TUI Travel were outperforming the UK industry where bookings were down 10 per cent over the period.
Thomas Cook Group – Europe’s second biggest operator – make a large chunk of its revenues in the UK, said that bookings in the country were worse than predicted. The demand for all-inclusive holidays had risen because customers pay the bulk of their costs up front.
Large companies like TUI Travel and Thomas Cook will survive the downturn however the smaller, low budget operators are under massive pressure.
“Budget business work off low margins and emergency reserves have been eroded during the downturn,” said the consultancy firm PricewaterhouseCoopers (PwC). “This year’s shock events, such as the lingering ash cloud, have forced them to price low to win business. This discounting has been enough to push someone over the edge.”
PwC said many travel companies are at risk of insolvency because they have no assets to offer a controlled restructuring. They purely rely on bookings to pay suppliers, which made late summer a dangerous time for tour operators.
“This is a tricky time of year in terms of cash flows,” said Douglas McNeil, transport analyst at the stockbroker Charles Stanley. “That seems surprising in the middle of the holiday season, but cash flow is at its strongest in spring and early summer. Companies have to pay out to their suppliers about now, so this is the time of maximum vulnerability.”
Despite the UK emerged from recession late last year, concerns over the slow pace of the economic recovery and tough public sector spending cuts announced that the UK Government have led many potential travellers to worry about their job – and alter their budgets accordingly.
“Most people try to preserve their holiday plans, but they might trade down from two weeks to 10 days or a week,” said Charles Stanley’s McNeil. “All the budget companies are now feeling the squeeze and there might be another handful of insolvencies before we’re done.”
Competition in the market is fierce, adding to the tour operators’ problems.
“Suppliers are cutting distribution costs and trying to provide services through their own websites directly,” said Euromonitor travel and tourism industry analyst Nadejda Popova. “At the upmarket end, Hilton have been discounting heavily which is unheard of in this segment of the market. That has led to weaker sales for highstreet tour operators.”
“Most companies were hoping the crisis was over because the holiday peak was over,” Popova added. “But in the autumn we will see quite a lot of companies going bust.”