As the rest of the economy, and most notably UK domestic tourism, emerges from its post-Covid restrictions, the foreign travel sector is still plagued by the restrictions and uncertainties that have been in place since March 2020.
Many seasonal and specialist operators must now prepare for a long winter, and regrettably, it is probable that after two long years – some operators will not re-emerge.
The sector is renowned for its resilience and innovation, and we are seeing these skills applied in these challenging times; some operators are investing in product offering, adopting new working practices and investing in technology through acquisition to ensure they are well-placed to take advantage of the gradual opening up of the sector – such as business travel platform Travel Perk’s acquisition of Click Travel.
In addition, the recent Portman Travel Group deal with sport development tour operator Inspiresport shows how big operators are seizing strategic opportunities to strengthen their offering in different markets such as sport travel.
However, for some, the international travel restrictions have fundamentally reduced consumer and business demand to such a level that there is such significant over-capacity in the sector that any operational enhancements cannot address the fundamental absence of sales, which could lead to further distress in the market.
In particular, new ways of working post-Covid look set to stay so the business travel sector, which some might say has been hardest hit, could take longer to remerge, if at all for some businesses.
With the gradual tapering off of the government furlough scheme and a stalled increase in foreign travel, we anticipate a period of consolidation and restructuring in the sector.
Many operators have strategic relationships and we anticipate increasingly niche sector operators such as sport travel specialists merging with strategic partners to expand their service offering and income streams as a means of mitigating risk.
This in practice will lead to more consolidation within the sector as specialists migrate from acting independently to partnering with others to operate under an overall travel platform benefitting from a central overhead base.
Cash injections
Many operators have benefitted from supportive stakeholders who have invested considerable sums to sustain trading during this Covid period. We anticipate this continuing.
However, it is probable further injections of funding will be linked to some form of re-organisation or restructuring. Not unreasonably, investors will wish to inject funds to develop and grow businesses; hence they will be averse to injecting funds to pay off historic losses and arrears.
Globally, there is a recognition many of the losses or costs associated with Covid should be ringfenced to allow businesses to move forward. Therefore, it is not unreasonable that within the travel industry – a sector profoundly impacted by the Covid pandemic – that some of these costs and losses are restructured or deferred.
A move to ringfence Covid liabilities will provide the confidence for investors and funders after a few volatile years to inject money into the sector, as the demand for international travel will return.
This will drive M&A activity later this year and into 2022, and ensure businesses and investors are well placed to benefit from the inevitable increase in international travel as the global restrictions are gradually unwound.
Damian Webb is a restructuring partner at RSM, which offers a range of auditing, business consultancy and restructuring advisory services.
