The number of retailers facing “critical” financial problems has almost doubled in the past year, and travel should expect a significant rise in failures in the autumn as banks withhold cash and unemployment rises.
Business rescue and restructuring specialist Begbies Traynor reported a 91% year-on-year rise in retailers close to collapse. They are among 200,000 UK firms in serious financial difficulty. The figures appear in the company’s quarterly Red Flag Alert report.
Begbies Traynor partner Nick Hood said: “The retail sector is spectacularly bombed out. Everybody is scared about their job prospects and currency rates are not helping. The crunch will be this autumn, but travel companies are in trouble now.”
Travel agents need every bit of cash to carry them through the winter, said Hood, warning: “Banks and credit card issuers are aware of the risks in the sector, and will hang on to cash as it comes in, rather than pass it on. That is endemic in the trade, and has immediate cash flow implications.”
He said suppliers demanding payment at the time of booking would add to the pressure. Hood said: “The deluge of negative news on jobs continues to savage consumer confidence, which will be compounded by the planned VAT increase at the end of the year.”
UK unemployment rose by the fastest rate on record in the past three months to 7.6% of the workforce, and is expected to be close to 10% by next year. VAT will return from 15% to 17.5% on January 1 2010.
Begbies warning came as operators admitted margins are being hit following aggressive price cuts. Every sale will help, but the price will be important.
An increase in bookings to Greece suggest cheaper self-catering deals are driving late sales.
Olympic Holidays commercial director Photis Lambrianides said: “How can you hold prices and not discount when you have capacity left to sell in July?”
Cosmos managing director of mainstream product Stuart Jackson said: “This weekend will be important because it’s the start of the school holidays.”
Agents reported difficulties converting late sales, as official statistics from GfK Ascent-MI showed the market in May was 11% down year on year. It suggests agents lost slightly more passengers than direct channels, but achieved higher revenues.
Britaly Travel managing director Daniel Broccoli said: “The phones are ringing but people are really shopping around. Let’s pray for a nice wet weekend that will encourage people to book holidays.”
Bryton Travel managing director Bryan Bath said the agency had seen a fall of 10% in lates revenues.