Travel sector under pressure?

Recent figures from business recovery firm Begbies Traynor have indicated it’s a risky time for those in the travel trade – but is this the full story?

With all the uncertainty in the global economy – and growing concerns around terrorism – the travel industry is experiencing a particularly difficult time, according to Begbies Traynor data. Their figures state that 2,679 businesses in the sector are currently flagged as undergoing significant distress, which represents a 10% increase in ‘red flags’ in comparison to the previous quarter, and a 4% rise on the previous year’s figures.

Some media outlets have published articles highlighting that holidaymakers are avoiding traditional destinations such as Egypt and Turkey because of worries over the threat of terrorism, and that they are feeling a bit less confident about how far their money will go because of rising costs. The claim that the industry is being squeezed is perhaps borne out in the Company Watch figures on UK travel agents and tour operators, where 26% of the market has been given a ‘warning rating’ which denotes risk of insolvency – and of those 1,800 firms, around 450 are considered at high risk of becoming insolvent.

But is this picture of doom and gloom accurate? Not at all, say a number of travel industry insiders.

At the recent ABTA Travel Finance Conference, Martin Alcock – Director at Travel Trade Consultancy (TTC) – highlighted a very different picture of the economic outlook for the industry in 2016/17. The figure he gave for the average projected turnover increase, based on a sample of 70 TTC clients, was an impressive 22%. He also went on to point out that various airlines are planning capacity growth of between 9% and 20%. ‘GFK Leisure Travel Monitor – Consumer & Market Trends’ booking data suggests that in fact both Winter 2016/17 and Summer 2017 show growth, and ‘Office of National Statistics’ figures show that UK residents are travelling abroad 8% more than they did in the previous year, while expenditure on travel was up 12%.

Mintel’s Travel Analyst Fergal McGivney also shared some telling statistics at the same conference, confirming that 2015/16 was a robust year for overseas travel, with leisure performing well (+9%), and business travel picking up too (+6%) compared to 2014/15. In 2016/17, Mintel estimates that holidays will see a 5% growth, while business travel will see an increase of 3%.

When it comes to inbound tourism, Mintel’s figures showed no increase in foreign leisure visitors – although the industry does expect numbers to rise strongly, owing to the devaluation of Sterling, which makes the UK a better value destination. The fact this hasn’t yet occurred points to the ‘lag’ between the economic peaks and troughs, and their impact on travel bookings, which can be attributed to the fact that buying decisions are often made well in advance of the trips themselves. This isn’t just a trend seen in the inbound market, either; a similar delayed effect affects the buying behaviour of UK holidaymakers travelling abroad.

So the jury is well and truly out. What will happen within the sector over the coming months? It’s tricky to say, because there are so many economic factors involved. What we can say, however, is that it’s wise to invest in protection against the uncertainty.

For travel companies, the robust protection offered by ABTA membership covers member transactions (including ABTA’s Single Payment System), but this doesn’t mean that the business is fully protected against agency / third party administrations and liquidations. There may be losses above the claims cap that are not protected, there is no cover where ‘credit terms’ are offered to agents, and both consortia agents and agents outside ABTA membership are not covered either.

As all our existing insured customers know, a bespoke Credit Insurance policy offers the chance to reduce risk significantly, ensuring that the knock-on effect of bad debt doesn’t impact on operations and bottom line profits. We have been providing tour operators and cruise companies with this type of great-value protection for more than 16 years, and have seen numerous substantial claims paid out in that time, including large failures such as Cruise Control, Travel Centre Stoke and E & ME Gill, as well as many smaller, less high-profile insolvencies.

We focus on building long-term relationships with both clients and underwriters. As travel trade specialists we are well-placed to advise on choosing the right level of protection, whatever the business climate, to support our clients in their success. Working with our strategic partners, we can also provide independent help and advice across the following areas:

  • Financial Failure Insurance
  • Airline Failure Insurance
  • Travel Bonds
  • Tour Operator Liability Insurance
  • Office Insurance

To find out more about how our tailored insurance policies can protect and support your business – and cost less than you might think – please call Trevor Price on 01279 722555.

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