Warren Buffet once said that when the tide goes out, you can see who’s been swimming naked.
It was a typically wry observation from the Sage of Omaha. It reminds us that companies are at the mercy of events outside their control, and that the true strength of a firm is only apparent during adverse conditions. It’s also pretty sound practical advice for seaside peeping toms.
Right now, the tide feels pretty far out for the travel sector. November was another low point in a difficult year, as once again some of tourism’s most popular destinations went into lockdown.
The atrocities in Paris felt a bit too close to home, especially after terror and confusion closed down Sharm el Sheikh, and the summer’s foiled attacks in Tunisia all but wiped out demand in North Africa. Even sleepy old Brussels became a battleground. The British holidaymaker’s already fragile confidence took a battering, and bookings were reported to have fallen by as much as 25% in the last week.
The big question is: can our travel firms cope? Traditionally the sector has been thinly capitalised. As a consequence, it has been able to survive short, sharp, shocks but may well be unprepared for a prolonged downturn. Many still live off their customers’ money, relying on tomorrow’s deposits to pay today’s bills. Some are still too highly geared, with big financial commitments to cover. If they’re not quite swimming naked, certainly some are looking pretty vulnerable in their budgie smugglers.
As we enter December, all eyes will inevitably turn towards the 2016 peak booking period. Habits have changed over the years, and thankfully January isn’t the make or break month it once was but the statistics still consistently show its importance. Some holiday firms may hope to secure more than 20% of their annual customers in that single month, and to collect a fair chunk of cash too. In times of uncertainty, the natural customer response is to delay making a decision. Let’s hope things improve before we reach that point.
Except, hope isn’t really much of a strategy, is it? Unfortunately, detailed scenario planning isn’t something I see too regularly outside the largest travel firms. All too often, budgeting amounts to little more than adding a bit on to last year and crossing fingers. Tracking performance starts and ends with comparing against
There’s no doubt that we’re heading into further uncertainty in 2016. We should all hope for the best but plan for the worst. The act of detailed financial planning is vital to understanding the key drivers of performance; knowing which costs can be cut and which levers can be pulled when cashflow tightens.
Whether swimming in your wetsuit or naked as the day you were born,
if you don’t know your break-even points and your red lines, how do you know if you’re floating on the surface, or already under the waves?
Martin Alcock is director of the Travel Trade Consultancy