A growing proportion of UK travel companies are in serious financial distress, according to corporate administrator Begbies Traynor.
The company’s ‘Red Flag Alert’ report for Q3 2011 warns that the number of travel and tourism businesses facing ‘critical distress’ has risen 49% in the past year, and that insolvencies are “inevitable”.
It also highlights a rise in the number of travel companies facing ‘significant’ distress, up 3% year on year and 29% in the last three months.
The rate of increase in ‘critical problems’ in travel and tourism is more than double the 23% year-on-year increase across the economy as a whole.
The Red Flag Alert draws on legal and financial data to measure corporate distress. It defines ‘critical’ problems as those where companies face a winding up petition or County Court judgment against them, and ‘significant problems’ as a court action, being insolvent or having out-of-date accounts.
It suggests 1,348 travel and tourism companies had financial difficulties it rated critical or significant in the three months to September – 5% up on a year earlier, against a 9% fall in the economy as a whole, and 27% up on April to June against a 2% increase across UK businesses. Only the utilities sector fared worse in every category than travel and tourism.
Begbies Traynor partner Julie Palmer said: “Cash reserves at travel and tourism companies are typically at their lowest during the fourth quarter so the rise in distress during Q3 is a real warning signal.
“Consumers are reining in their spending. Sectors reliant on discretionary spending are bearing the brunt.”
The company’s executive chairman Ric Traynor added: “A crisis of confidence did nothing to help retailers improve their prospects in the summer. The months leading up to Christmas could make or break a number of high street names.”
He warned: “We expect decreasing consumer confidence to manifest itself in further insolvencies in the retail sector.”