Simon Cooper, chief executive of On the Beach Group, said the travel industry must "reflect on financial protection" following the coronavirus crisis, and look out how the industry can be made "robust enough to withstand future shocks".
He added: “While the coming months will continue to present a huge challenge, I look forward to the multitude of opportunities which lie ahead.”
Cooper’s comments came in an On the Beach trading update issued on Wednesday morning (8 April), in which the group revealed it had agreed with its bank to extend a £50 million credit facility through December 2023.
The group said its flexible, asset-light, zero inventory risk model – with no fixed commitments on hotel rooms or airline seats – put it in an advantageous position versus operators and airlines with "committed inventory costs".
On its trust account setup, On the Beach confirmed customer funds were ringfenced until the point of travel, meaning it does not rely on cash for forward bookings to continue trading.
Moreover, it means the company can repay customers whose holidays have been cancelled due to conditions such as those arising from the Covid-19 pandemic "with limited impact on the group’s working capital".
Cost-saving measures implemented in February have reduced monthly cash costs to less than £2 million across the group, which includes cutting marketing spend to "almost nil".
Cooper, meanwhile, will forego his salary, while the rest of the board have voluntarily agreed a 20% reduction in salary and fees.
No bonuses will be awarded across the group for the current financial year (to 30 September), and the board will not declare an interim dividend during the group’s 2019/20 financial year.
On the Beach has stress-tested its business model on the basis:
- there will be no bookings across the entire travel sector until the end of September 2020 for any future travel;
- all flight programmes will be cancelled until the end of September 2020, therefore resulting in all forward bookings through September 2020 being cancelled and all On the Beach customers being refunded within 14 days of receipt of cash refunds from airlines;
- monies paid for flights will be available via chargeback in the event of airline failure, and On the Beach taking financially insecure airlines off sale;
- and that there would be a significant reduction in bookings year-on-year until at least the end of March 2021.
On this basis, On the Beach believes it would end the first half of its 2020/21 financial year with only "limited" reliance on its banking finance facilities, and "significant headroom" which the group says it would be able to use to "take advantage of the multitude of opportunities" the market conditions present.
‘We need to reflect on financial protection’
“The travel industry is prone to shocks: global recessions, natural disasters, terrorist attacks and major airline failures to name a few," said Cooper.
"A closure of airspace was deemed inconceivable during contingency planning for a no-deal Brexit, but we now find ourselves in a position where airspace may be closed for a number of months due to the spread of Covid-19, and the travel industry needs to brace itself for a potentially prolonged period of significantly reduced, or even zero revenue.
“Against the backdrop of the impossible market conditions in which we find ourselves, the resilience of On the Beach’s asset-light and flexible business model becomes clear. The benefits of using a trust account structure become obvious for consumer protection, for the financial stability of the business and ultimately for the protection of the taxpayer.
"It would appear obvious that, as an industry, we need to reflect on financial protection and on how we can make our industry robust enough to withstand future shocks.
"While the coming months will continue to present a huge challenge, I look forward to the multitude of opportunities which lie ahead."
