A strong appetite for travel is adding to the financial pressure on some businesses as suppliers demand additional financial security to cover increased bookings.
That is according to Richard Buxton, Inspire Europe chief financial officer, who told Abta’s Travel Finance Conference in London last week: “Suppliers are starting to ask for more security and that has an impact on working capital.”
Buxton said: “Demand for travel is excellent. Suppliers are also experiencing that and feeling more at risk from a failure. They feel more exposed by the level of demand.”
He insisted: “I understand it from a suppliers’ point of view. Everyone wants to protect their financial position. [But] it creates a challenge [when] we’re being asked for security at the levels we are now, when we already have failure insurance.”
Buxton suggested: “Exposure levels are ballooning and suppliers are not happy with their risk position. All are having to provide this level of security now irrespective of their payment records. It’s hard to manage and makes it harder to expand your business.”
Ingrid Cawood, chief financial officer at inbound operator Mika Travel, agreed increased demands for security are affecting cashflow, saying: “Borrowing [to provide security] when interest rates are high is eating into margins.”
Flight Centre chief financial officer Adam Murray told the conference: “The pandemic opened a lot of lenders’ eyes to the risks in this industry. That has not disappeared, and it flows the whole way through the credit cycle.”
He also identified “a trend coming out of Covid where most customers [of Flight Centre] were incredibly late in paying”. Murray said: “We’ve invested in credit control and been zealous on that, charging for late payments, taking a much harder line.”
Buxton warned the increase in employers’ national insurance contributions and national living wage rates from next month would be “significant for every business” and “reflected in pricing across all businesses”. He said: “I see suppliers’ notifications of price increases regularly. The outlook for travel is optimistic, but managing costs is going to be key.”