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Major travel company could face restructuring

The Confederation of British Industry has warned travel firms face increasingly difficult trading, amid concern that a major player is seeking financial restructuring.


The Civil Aviation Authority would not confirm its involvement in a restructuring as Travel Weekly went to press, but leading risk consultancy Kroll is believed to be involved.


The UK’s big two, TUI Travel and Thomas Cook, have reported positive trading after slashing capacity this summer. But industry accountant Chris Photi of White Hart Associates said: “The market dropped around the end of June.


“The big two cut capacity dramatically, but medium-sized businesses and smaller firms have started to struggle.”


Speculation that a restructuring could involve a merger of several airlines was ruled out by a senior industry source, who said: “Who would invest in the weakest players getting together?”


Analysts point out financial restructuring will be difficult due to the banking crisis.


A CBI quarterly survey of service-sector profitability found the volume of business through travel firms has suffered “a surprisingly fierce decline” and suggests profitability has been falling for six months.


It concludes: “Further steep falls are expected over the next three months. Firms are very gloomy about profitability and unanimous in not expecting to expand.”


The CBI survey suggests profitability in the sector is lower than in 2002 or at the height of the discount war in the late 1990s.


Only goods transport companies show less confidence than those in travel, according to the CBI. However, several sectors are more pessimistic about the outlook for jobs.


The survey of 176 firms took place between July 23 and August 6.


The Air Travel Trust, which oversees funds for consumer protection, warned last week of a likely increase in company failures. The autumn traditionally brings heightened risks as companies require cash to survive through the quieter period of the year.




 

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