Another lost summer – UK travel sector needs to preserve cash amid COVID-19 uncertainty

Another lost summer – UK travel sector needs to preserve cash amid COVID-19 uncertainty

It is looking increasingly likely that the UK travel industry is going to face another challenging summer season. The removal of Portugal from the UK’s travel ‘green list’ signalled an unambiguously cautious approach to the reopening of the sector, a position which seems unlikely to change markedly in time for the peak booking and travelling period.

Against a backdrop of ever-evolving travel rules and advice, it continues to prove difficult to tempt consumers to confidently part with their cash – even where ATOL consumer protection is in place.

In addition, consumers must now organise multiple COVID tests for their journeys, which – for as long as the cost of testing remains high - may make shorter holidays uneconomic.

A key challenge for consumers is the present lack of synchronisation between origin and destination countries with respect to quarantine rules and vaccination progress, which is likely to hamper near-term recovery prospects.

Given this difficult backdrop, some leading online travel agencies (OTAs) have adopted a cautious view by halting the sale of all holidays this summer. In part we suspect there is an element of brand protection at stake here, via avoiding having to cancel and refund bookings. YouGov research recently indicated that just 15% of adults thought that it would be worth travelling to ‘amber’ destinations under current guidelines.

In addition, and crucially for OTAs where many will pay the airline immediately on booking, there are potentially significant negative working capital issues if OTAs continue to sell holidays that are then cancelled.

Cautious optimism

It may not be until summer 2022, or even 2023, before 2019 volumes are reached within the UK travel industry.  However, from this depressed base, over the next five years the industry could see real growth, so long as real disposable income growth forecasts are met.

It is those companies with strong balance sheets and appropriate contingency plans agreed with key stakeholders that will be best positioned - not just to protect the long-term value of their brands, but to manage any future regulatory changes and potentially even acquire those businesses which are struggling.