Comment: Abta must rethink its subscription demands

The association should consult all members on alternative options to raise liquidity, argues White Hart Associates head of travel and leisure Chris Photi

In the last 16 months travel companies have had virtually no income. Despite this, incredibly only 30 companies (24 Abta members) have failed.

Survival has been achieved through a variety of approaches, most focused on liquidity generation and retention measures – exchanging customer refunds for vouchers, sourcing government-supported lending and other support schemes such as the Job Retention Scheme and, most importantly, the slashing of overheads and costs, particularly salaries and marketing expenditure.

Many smaller entities are surviving simply based upon the effective “hibernation” of their businesses.

Against this backdrop, Abta has taken the decision to materially increase the annual subscriptions levied against its members for the 2021-2022 subscription year. This has resulted in the travel agent action group Target calling for Abta to reverse its decision to levy subscriptions based upon member’s 2019 revenues. Target wants Abta to halve the subscriptions for members as it did for the 2020-2021 subscription year.

More: Abta urged to consult all members over fees

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Historically, “the ABTA subscription fee is calculated by reference to subscription turnover” being “the gross turnover from the sale of travel arrangements…”. For the 2021-2022 subscription year, this would, in most cases, have been based upon the member’s revenues for 2020. As these will be very low, Abta has arbitrarily decided instead to use the 2019 pre-Covid-19 revenues, thus maintaining its subscription income stream at pre-Covid-19 levels.

For 2020-2021, Abta based its subscriptions on the same 2019 revenues (as per “the Abta Rules”) but agreed a 50% reduction thereon to support its members, at a cost to Abta of “£3.3 million, to be funded from reserves”. At June 30, 2020, Abta’s reserves stood at £14.4 million after providing for £4.7 million in net pension liabilities. Target’s demand for a similar reduction in 2021-2022 would therefore cost Abta a similar amount.

In response to Target, Abta justified the increase in subscriptions as being necessary to provide “free legal fees and business support, lobbying and operational guidance as well as a trusted brand”. None of this is of course “free” to members. The fact is that Abta’s annual administration expenditure, based upon its most recent published accounts, runs at £10.5 million per annum of which salary and staff costs are £6.6 million (including key management personnel costs of £1.3 million).

There appears to have been no discernible attempt on the part of Abta to reduce costs, as all of its members have had to do, with staff levels in fact increasing in 2020 over those in 2019.

Abta has a substantial investment property valued at £20 million. As at June 30, 2020, Abta had no debt. Abta’s financial statements refer “to mitigating actions to ensure sufficient working capital” is maintained by the fact that “Abta Insurance PCC Limited have undertaken to provide a loan facility to Abta if there is a cash-flow requirement, and there is an option to seek to secure an external loan secured against Abta’s Newman Street property”.

I do not think anyone could possibly believe that Abta should borrow from its Captive Insurer funds that have been contributed by members to underpin the Abta bonding scheme. However, utilising an investment property to raise liquidity seems a not-unreasonable approach that could be taken to support its members in these troubled times.

Under the government support lending rules, debt providers make reference to pre-Covid-19 levels of profit to ascertain the future serviceability of debt.  In the financial year ended June 30, 2019, Abta made a healthy surplus before taxation of £2.88 million.

I believe Abta should now take an absolutely transparent approach to its projected finances with its members. It should consult its members formally and obtain their input on whether Abta should take on board debt, a contingency Abta itself reflected in its own recently published accounts, instead of levying the additional increase in subscriptions. Long-term this would probably be a sensible approach as I can foresee Abta losing a number of members come July 1, 2021 because of it subscription proposal.

Lest we forget, in Abta’s own words: “Abta is a trade association, representing the interests of its members, and servicing their business needs”. I cannot conceivably think that the interest of the “business needs” of the members is best served at this time by increased subscriptions if there remain alternative viable options to raise liquidity.

After drafting this comment piece, it appears that Abta has set up an Abta Services Focus Group to look at subscriptions and how highly members value the various services it offers and by extension their willingness, or otherwise, to pay for these services. This exercise should be for all members to participate in, certainly as far as the questionnaire is concerned.

More: Abta urged to consult all members over fees

Abta defends members’ subscription costs

Abta pledges to keep sector support on government agenda

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