Uncertain year ahead for travel industry with pandemic disrupting operations
When asked if the company is likely to receive state assistance as TUI became more and
more impacted by coronavirus, the specialist highlighted that it’s possible that this could come from either the German or British government. “The only risk they’ve got is potentially which government thinks they’re responsible… I suspect both will get involved at some point.”
Two significant ways that the company is losing money is through refunding consumers and not taking new bookings. “You’re losing all the future deposits for winter and next summer and you’re refunding customers who aren’t going this week, next week and the week after.” The specialist covered the figures lost from each source, and how much this could potentially add up to.
TUI’s cash flow was also discussed in light of the coronavirus impact. This typically reaches a low point in December-January, while two-thirds of business takes place in summer. As the average price of holidays increases from spring onward, so does the amount of cash received. In addition, as TUI has to pay creditors, such as hotels, for completed holidays, there is a massive cash outflow in September to end-December.
When asked if the revenue not being accrued now was totally lost, the specialist pointed out that there would be a bounceback. However, “everybody knows in travel, a late market is not as good as an early market.” Rather than allowing bookings to build up over time and follow the usual demand curve, once airlines can operate again there will be a rush to fill seats – and huge price cuts in order to achieve this.
The Air Travel Organiser’s Licence (ATOL) is due to be renewed in late April, and has already been delayed once. “I don’t think anyone is going to pass the ATOL test at the moment because they won’t have the cash on the balance sheet. The outlook is… grim.” It was pointed out that the test makes no sense until government bailouts take place to help
with the recovery of the coronavirus impact.
To access all the human insights from Third Bridge Forum’s TUI – Coronavirus Impact & Mitigation Interview, click here to view the full transcript.
The information used in compiling this document has been obtained by Third Bridge from experts participating in Forum Interviews. Third Bridge does not warrant the accuracy of the information and has not independently verified it. It should not be regarded as a trade recommendation or form the basis of any investment decision.
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