Company failures in travel are likely as government supports starts to unwind and banks become less inclined to lend, according to leading business restructuring expert.
Robert Insall, a partner at Begbies Traynor, told Travel Weekly‘s Future of Travel Conference that firms were struggling after two years of limited cashflow due to the pandemic.
He said constantly changing Covid rules and regulations has dented consumer confidence in committing cash to making a holiday booking for next year.
“The situation varies from business to business, obviously, but there are going to be a lot of travel businesses that are struggling after two years of a pandemic with limited cash coming in.
“If you do not have understanding shareholders to support you or a history of cashflow and balances, it’s pretty tough out there.
“I would be surprised if there are not some failures. Insolvency numbers over the last few years have been at record lows because of government support, but we are starting to see that unwind now.”
Insall said many firms have taken on debt they were not planning on and are now facing the end of the UK government’s job retention or furlough scheme.
On top of that many travel firms face having to renew their Atol licences and Abta bonds, as well as negotiating merchant terms with payments companies.
Insall said banks are under a lot less pressure to lend to businesses now than at the height of the pandemic and they are looking for a strong history of cash generation.
“Banks are happy to lend to companies with strong balance sheets and good financial performance and history,” he said.
“It’s still quite hard to predict when there will be a full-on recovery and when does normality come back. Banks do not want to take much risk and they will be nervous about funding more risk.
“Businesses won’t be able to find the cash. If you think your business will be in that position in the future start thinking about it now. The more time you have to find the cash the better your chances.
“If you look ahead and say cash looks bad in three months you have a fighting chance to get people to lend you the money or invest in you to meet those challenges.”
Insall said it is likely the travel sector will see consolidation as good businesses with short term cashflow problems look to survive.
“If your business is going to run out of cash, one of the things you would look at before pulling down the shutters is to see if someone is willing to buy it because that will protect the brand and jobs.
“Private equity firms see travel as a great investment opportunity. The thing they find difficult is predicting when normality returns but they are prepared to take a longer term view than banks.”
Chris Photi, partner at industry accountancy firm White Hart Associates, said: “Everyone is looking for a deal. There are funds that I call vulture funds.
“They want to pick up something for nothing, they don’t want to pay anything so there’s not much incentive for owners although there may be some earnout opportunities.”