Strong trading since the turn of the year has exposed “all sorts of gaps” in businesses while pandemic-era financial constraints have limited companies’ ability to trade freely.
That is according to Travel Trade Consultancy (TTS) head of financial consulting Adam Pennyfather and owner and director Martin Alcock.
Pennyfather said: “January trading was great, with margins holding up and balance sheets starting to strengthen. But there are still constraints. Things are going in the right direction, but there is not the freedom to trade freely.”
He said Iata’s decision to shorten the payment cycle by requiring payments a day earlier from January had “caused some cash flow problems” and noted: “Credit limits were lowered during the pandemic.
“Everyone is also starting to pay down debt and repay loans, and recent rises in base rate have pushed up payments.”
Alcock agreed: “January came back strongly, like drinking from a firehose.” But this posed “operational challenges”, he said, arguing: “It exposed all sorts of gaps in new teams who don’t have the experience and knowledge, operationally or financially, of pre-pandemic teams.
“A lot of businesses are still behind on recruitment and that is putting a strain on businesses.”
He cited the example of an operator forced to repatriate clients following the closure of Machu Picchu in Peru, saying: “The team didn’t know what they were responsible for or what they could charge for.”
Alcock suggested Atol and Abta bond renewals in March should prove “easier” than in the last three years, arguing: “The bonding market is easier than a year ago, although there is a still a very small number of players [offering bonds] and little option. Bonding capacity is not keeping up with demand.”
But he pointed out the downside to strong bookings when it comes to renewals because bookings must be protected before full payments are received and show up in the accounts used to set financial requirements.
Alcock said: “A strong January is great, but it won’t appear in someone’s accounts until later. There is a lag. Abta bond renewals should be easier as it’s more predictable after the switch to ‘peak’ bonds.”
Abta changed its bonding requirements during the pandemic to seek bonds based on peak booking levels.
But Alcock noted: “The flip side is that, with January so strong, the peak customer-money balance looks very strong and the bond has to be higher.”
Both believe most businesses should withstand any slowdown in trading. Pennyfather noted: “Lead times are still short so there is some uncertainty about late summer [bookings].
“Margins are at around pre-pandemic levels. Costs are inflating but there is a lot of elasticity in pricing. If trading does tail off, and that would be my expectation, most travel businesses should be nimble enough to react.”