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The reckoning: when to call time on distressed travel and tourism businesses?

The reckoning: when to call time on distressed travel and tourism businesses?

31 March 2021

When the Welsh government recently wrote off Cardiff Airport’s debt to the tune of £42.6m and provided a further £42.6m in grants, the aim was to ensure that there was long-term stability for the business in the post-pandemic era. Likewise, Birmingham City Council granted an £18.5m emergency loan to the city’s airport to help stave off any threat of insolvency. 

These emergency measures were not merely a shot in the arm for the main Welsh and West Midlands international transport hubs, but also a signal that businesses would continue to be protected post-Covid-19. 

The emergency loans coincided with announcements by chancellor Rishi Sunak that the government was pledging £68bn to extend its coronavirus emergency loan schemes and the coronavirus job retention scheme (furlough scheme) until the end March. The furlough scheme was again recently extended to September, with employer contributions. The new funding includes an extension of the £19.6bn coronavirus business interruption loan scheme and the £5bn coronavirus large business interruption loan scheme.   

But, while business leaders see the extension of these rescue packages for UK companies as laudable, restructuring and insolvency professionals know them as a move that simply ‘kicks the can down the road’. And, as the examples of Cardiff and Birmingham show, nowhere is this more evident than in the travel and tourism sector.


Covid-19 takes its toll on travel

The sector had already been hit by the bankruptcy of Thomas Cooke back in 2019, but with the onset of Covid-19 large and small firms alike were to follow – from Flybe last year to the recent collapse of small specialist tour operator Tucan Travel.

According to analysis by restructuring experts at Travel Weekly, more than 2,000 tour operators were on the brink of collapse at the end of last year. Meanwhile, the Real Business Rescue Business Distress Index reported that in Q3 2020, 657 tour operators and 1,243 travel agencies were in ‘significant distress’. In Q4 2020, 1,440 travel agencies, reservation services and related firms were on the verge of collapse, an increase of 33% year-on-year, according to the report.

Looking at the wider travel sector, including railways, tour guides, airlines and ferry services, Real Business Rescue found that some 4,500 businesses were in serious trouble and possible terminal distress in the sector, endangering 27,000 jobs.

For most travel professionals, only the opening up of national and international travel networks will save of these businesses. Regardless of the success of the coronavirus vaccine, however, most consumers are still reticent about booking flights abroad or staycation hotels in the UK.


Restructuring packages and M&As 

Despite the continuance of government rescue measures, which is expected by restructuring and insolvency professionals, many believe it’s now a matter of ‘when’ not ‘if’ these businesses fail – and fail en masse. Some think that restructuring packages or M&As may be the answer for more familiar brands, particularly those that had healthy balance sheets in the past. But, given the current environment, even making valuations of acquisitions is difficult.

For IPs, the travel and tourism sector is asset light – for example, many businesses in the sector rely on existing client data, which will be difficult to evaluate given the collapse of the industry during the last 12 months. It is also difficult to predict an uptick in luxury travel, cruises and skiing given the loss of trade and contemporary data during the past year. The best-case scenario predicted by the International Air Travel Association is that passenger numbers on short-haul flights could recover sometime in 2023, but long-haul fights may never fully recover.

In February this year the government announced it would extend the temporary measures implemented under the Corporate Insolvency and Governance Act for another year. This was ahead of the current expiry date of 30 April 2021. The measures were referred to as giving businesses ‘breathing space’ until they were able to get back on their feet following the pandemic, and to provide relief for companies facing a winding-up petition. Consequently, an extension of the moratorium rules was being considered to 30 March 2022. This was confirmed recently by business minister Lord Callanan when he said: ‘It is vital that we continue to deliver certainty to businesses through these challenging times, which is why we’re now extending these important and necessary measures to protect companies from insolvency.’ 

So, where does this leave UK restructuring and insolvency professionals?

All agree that they will need to prepare for waves of distressed businesses and/or a huge increase in M&A activity, but many also know that the problems will be pushed further into the future by the government. The question is whether to start to build teams now or wait and keep watch for the official announcements before the inevitable future reckoning.


Andrew Chilvers is head of GDPR and data protection at MAPS Solutions Europe Ltd.


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