Many travel businesses are likely to require fresh financial support to emerge from the pandemic.
Alistair Pritchard, Deloitte lead partner for travel and aviation, suggested businesses fall into “two camps” in the latest Travel Weekly Insight Annual Report.
The two camps are those which “weathered the storm reasonably well or raised funding such that they can weather the storm” and those that “haven’t secured funding or need more” or “need continuing support with existing lending”, explained Pritchard.
He said: “Everybody is grateful to have bookings coming in, but deposits aren’t the same as final balances coming in and the cost base has gone up.
“It will probably be well into 2022 before a lot of businesses see meaningful numbers of people traveling. So there is a challenging period ahead and a possibility of some failures.
However, he and Jamie Avni, Deloitte financial advisory transaction services director, see no change in the underlying attitude of investors towards travel.
Avni pointed out: “The CAA’s September licence renewals saw the number of renewals come down a significant amount because of concerns about the financial position of some travel companies. “Businesses have had a year of refunds and refund credit notes that are yet to unwind.
“So when renewing their licences, companies are asked to put up a significant amount as a bond or to set up trust accounts. That is in addition to merchant acquirers asking for longer deferrals on payments or rolling reserves or even for bonds or trust accounts.
“The requirements of merchant acquirers and the CAA are putting a strain on working capital for some travel companies. Even as they see an increased level of bookings, their cash is potentially going to be tied up in trust accounts or bonding, potentially creating some distress.”
Avni added that: “A lot of private equity [PE] houses loved travel pre-pandemic. Everyone knows it’s going to come back. The pandemic has not turned off the appetite for investment in the sector.”
Pritchard said: “The one caveat would be consideration of any new [Atol] regulations. If the regulatory landscape changes and impacts on the amount of cash that needs to be ring fenced it could be interesting when investors are assessing whether and when to invest.”