Over the past month, travel businesses have realised hibernation is the easy bit – it is the restart that many may yet struggle with.
Why haven’t more travel companies gone bust? Well there’s the furlough scheme, which has reduced overheads and given management an incentive to go on. They can pay staff something for a longer period and protect them as much as possible.
There are refund credit notes, which have allowed many travel companies, so far, to avoid paying out large scale refunds at this stage – customers are continuing to make balance payments too for fear of defaulting and losing their deposits so there is still cash flowing in.
Suppliers, meanwhile, like hotels, would normally refuse guests entry to force payment, but as most people aren’t travelling, this is not happening.
Elsewhere, the CAA has persevered with licence renewals with little additional scrutiny of businesses balance sheets to preserve financial protection, while government has suspended some of the rules around businesses operating while technically insolvent.
Financiers too don’t want to risk the adverse publicity of pulling the plug on a business.
This, however, does not mean there aren’t still grave risks to travel firms, and conditions – in the short-term – that could force companies into administration. In fact, they are many.
Merchant clearers are still withholding funds; Rebound Consulting has been told some are withholding 100% of payments until their risk on forward bookings for the summer has been covered.
Smaller businesses, meanwhile, continue to face difficulties securing loans. While easyJet has negotiated a £600 million commercial loan from the government’s Covid Corporate Financing Facility, many small businesses are still awaiting the results of their applications for government-backed disruption loans. A negative outcome could lead to administration.
Refunds via Iata’s billing and settlement plan are also a concern; April’s refunds were paid, but many companies are worried about airlines refusing refunds and causing a BSP to collapse in future.
Still on refunds, some customers are forcing them. This can be done directly by clients through consumer credit protection, but the industry should be wary of claims firms, so-called "ambulance chaser" companies, setting up to mediate the process in exchange for a share of the refunds secured.
Then there are refunds via the CAA and Abta; Abta is seeking respite from the 14-day refund rule under the Package Travel Regulations, but both have rightly stated this cannot go on forever. This may create a trigger date for administration.
We are also still yet to see how flexible some of the aforementioned regulators, such as the CAA and Iata, are going to be in terms of what level of strength of balance sheet they are going to require come the next renewal.
And remember, the furlough scheme will – one day – come to an end. Management teams will try to look after employees for as long as possible; if they go into administration now, furlough payments for staff will be lost. As furlough ends, we think more companies will give up.
There are several other matters that still yet could come back to bite travel firms when it comes to restarting business:
Travel has not seen the worst of the coronavirus crisis yet; Rebound hopes no travel companies will fail, but this – unfortunately – seems unlikely.