It’s not refund credit notes pushing operators under, says Begbies Traynor insolvency practitioner Kris Wigfield
As holiday cancellations and customer refunds gather pace, it’s not consumers seeking reimbursements which are throwing tour operators under the bus; it is negotiating new payment timeframes between consumers and suppliers, while maintaining financial commitments, such as Atol payments.
If you then sandwich this into protecting company cash flow, reacting to the changing landscape of Covid-19 guidelines and advice from the Foreign and Commonwealth Office (FCO), this forms into an iceberg of concerns for a business already on unstable footing.
The introduction of the insolvency practitioner typically induces the reprioritisation of key company focuses, including the likes of flipping payment systems, enforcing tighter credit control measures and repurposing packages to adapt to customer behaviour shadowed by the coronavirus pandemic. As the future of international travel remains uncertain for summer 2020, I’ve seen many tour operators push staycation packages up the ranks as this also tackles the recent 14-day quarantine enforcement.
In my experience in advising travel companies through insolvency processes with the coronavirus pandemic as a backdrop, I have seen cover withdrawn because selected tour operators failed to declare booking information to Atol, Abta and insurers in line with terms and conditions.
If directors are taking deposits on holidays they know they are unlikely to be able to fulfil, this pins a target to their heads, bringing a host of legal and personal complications ashore as you could potentially be personally liable, affecting insurance claims and customer pay-outs.
If you are a tour operator and you are well aware that issuing refunds will push you under, you’re likely to dig your heels in and hope that consumers won’t sue you over a £1,000 holiday. I’m seeing spaced payments used by many providers to provide certainty for future holidays, reducing the likelihood of cancellations. However, if you can’t deliver, this is the cue for a licensed insolvency practitioner to step in.
Another area of concern is the value of cash reserves running dry and investments plummeting in value due to Covid-19. Directors need to take heed that historic expectations remain the same as insurers and bond providers require a certain level of liquidity or balance sheet assets to provide cover.
As of April 2020, the travel and tourism industry ranked #11 for sectors in distress, looking at Q1 business distress data produced by Real Business Rescue, part of Begbies Traynor Group. We’re due to release figures for Q2 where I’m expecting the travel and tourism sector to climb up the rankings as overseas movement continues to be restricted and the effects of the controversial 14-day quarantine for individuals returning to our shores, which came in on June 8, takes hold.
As the travel industry falls stale with no imminent view to resuming at normal levels, it’s vital to continue with essential payments and communicate new payment terms with consumers and suppliers to ensure that you’re all working in tandem.
The travel industry stands in a chain of dominos alongside the hospitality, leisure, and food sectors; absorbing the economic pressure presented by the coronavirus pandemic. Due to the changing nature of the guidelines surrounding the coronavirus pandemic and ongoing uncertainty experienced by the sector, tour operators should tread cautiously, protecting the best interests of both the creditor and the financial health of the business.
Government support measures can provide some short to mid-term buoyancy but the long-term effects of Covid-19 on this embattled sector are likely to be catastrophic – and there is no getting away from that.
