Travel companies run a greater-than-average risk of financial failure because of a widespread lack of understanding among tour operators of the businesses risks they run, according to a leading analyst.
PricewaterhouseCoopers director of business recovery services Ian Oakley-Smith issued the warning last week as the run on UK bank Northern Rock deepened fears of a financial crisis. He was immediately backed by Air Travel Trust chairman Roger Mountford.
Speaking at the Travel Law, Policy and Management Conference, Oakley-Smith said: “Companies are lulled into a false sense of security because they have customers’ money in the bank, but it is not theirs.
“Sixty ATOL holders or ABTA members have failed each year over the last 10 years – and those years were economically benign. An economic downturn will push some out of business. We expect there to be more failures.”
Mountford, who chairs the trust that backs up the ATOL system and deals with the company failures that exceed their bonds, said: “I’m struck by the poor quality of financial information in the travel industry. Analysis of risk is standard in other businesses, yet I rarely see awareness of risks among tour operators.”
He said having customers’ money in the bank gave rise to “hubris” among tour operators: “They feel everything is okay.
“Companies should assess the risks of a fall in consumer spending, of market concentration, of competitor action and of political risks.”
Oakley-Smith said: “Most businesses that fail have blind spots in the back office. In other industries, there are more checks and balances.”