The over-50s specialist made the admission in a trading update issued on Thursday (2 April) assessing the likely longer-term impact of the Covid-19 crisis, which the group believes will be followed by “a slow recovery”.
More than 2,300 Saga staff have transitioned to home working, while “almost all customers” overseas have now been repatriated. Efforts to rebook customers are ongoing across Saga’s tour operator and cruise businesses.
Elsewhere, delivery of Saga’s second new-build ship Spirit of Adventure, which had been due in August, could be delayed, the group has been advised by shipbuilder Meyer Werft.
Saga group chief executive Euan Sutherland said that while the firm’s travel business had been “significantly impacted”, the group had “acted quickly” to ensure the health and wellbeing of customers and staff.
However, the group on Thursday confirmed it had considered scenarios for an extended suspension of cruise and touring operations, “including full cancellation of all travel departures over six months, followed by a slow recovery”.
“Saga is ready to start sailing as soon as the travel advice changes," said Sutherland. "Today, we have outlined some prudent planning scenarios to investors – they are not a prediction as to when travel will resume.”
Steps to protect the group’s balance sheet and improve liquidity include drawing down £50 million from an outstanding credit facility, which boosted cash resources to £92 million as of the end of March.
Cost-saving measures introduced in February have freed up £15 million, although this is likely to be at least “partially offset” by £10 million in expected redundancy costs this year.
The group, which also contains a profitable insurance arm, also expects to recoup £23 million from the sale of its motorcycle insurance business Bennetts.
“We have significant available liquidity and can consider a range of further mitigating actions across the group,” said Sutherland. “Saga is a strong brand with loyal customers, and where we offer really differentiated products, underpinned by excellent service, our businesses do well and have the potential to do better.
“Organisationally, the group had become inefficient, lost its tight focus on customers and had underinvested in digital, data and brand. We have started the work to make the changes necessary for us to be able to deliver the truly differentiated products and services our customers expect from us.
“Against the backdrop of Covid-19, the outlook is uncertain, but we remain confident the Saga brand, and our insurance and travel businesses, have a successful future ahead.”
Saga said while customer demand for future departures “remains positive” across both its cruise and tour operations, “there remains considerable uncertainty as to when travel services will resume”. “It is likely the period of travel suspension will continue beyond May,” said the group in its trading update.
Should the suspension continue for a full six months, followed by a slow period of recovery, it expects full-year revenue for tour operations and cruise to come in around 65% down. This would translate to a drop in underlying profit before tax of 15%-20% for tour operations and 55%-60% for cruise.
“The group expects a significant portion of cruise advance receipts will be retained, in return for discount vouchers and offers on future departures,” said the group.
“For the tour operations business, customer refunds will primarily be met from cash held in the ring-fenced travel business, with a much smaller provision of cash support from the group to ensure full compliance with regulatory cash requirements is maintained.”
Additionally, Saga believes there are further measures pending to support the cruise sector. Its trading update adds: “The group will apply for a waiver of the covenants in the ship debt and is likely to apply for a debt holiday for the period to 31 March 2021 under a package of proposals that are being put together for the cruise industry.”
