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The UK’s travel agents are enduring lean times ahead of 2024. While the level of income from tourism in the UK is heading towards a recovery from the pandemic, many firms are so heavily burdened with debt that they are struggling to meet their financial obligations.
Long-distance travel has still struggled to surpass pre-pandemic levels in 2023. Earlier in the year, a report from Roland Berger drew from a consumer survey of almost 7,000 people in the US, Germany, France, UK, China, India, and Brazil – all key markets for the airline industry – found that business travel in particular continues to lag. With video conferencing now the norm, many of the miles once put in by business travellers have become obsolete.
Research by the Opus Business Advisory Group has shown the impacts these shifts are having on the wider travel and hospitality ecosystem. Opus Business Advisory Group has the largest independent practice of restructuring and insolvency specialists in the UK, with a head count of over 100 and with 24 Partners in 13 regional offices. According to the firm, the overall financial health of the UK’s travel agents and tour operators remains “well below par”, with clear warning signs on a number of key measures.
While the World Travel & Tourism Council’s latest assessment predicts that tourism will in fact contribute £252 billion (11% of GDP) to the UK economy in 2023, finally beating the pre-pandemic high of £248 billion in 2019, there are still challenging times ahead for the travel trade. Enquiries, new sales and bookings fell to their lowest level of the year during the second half of 2023, with client spend heavily dependent on cost-of-living challenges, particularly with winter and Christmas looming.
Examining the sector in more detail, Opus used the Company Watch financial monitoring system to look at overall finances by analysing the latest published accounts of 5,817 UK-registered travel businesses, the average financial rating of these companies is only 38 out of a maximum of 100. Across the economy as a whole, the researchers found this figure to be around 48 out of 100, showing how seriously vulnerable the sector is.
A further worry is the number of ‘zombie’ travel companies with negative balance sheets where their liabilities exceed the value of their assets. 973 companies – or one-in-six – are in this category, with a combined shortfall of £571 million. Meanwhile, 782 of the companies also have negative working capital, where their short-term liabilities are higher than their easily realisable assets like cash, inventory and debtors.
These financial weaknesses are particularly worrying in the context of how under-capitalised many travel companies are. A third of travel agents have total assets of only £25,000 or less. However, according to Opus, there is some “good news”. That travel companies have at least made “significant progress in reducing their borrowings”, cutting them from an average of £765,000 per company in July 2021 to only £404,000 now – a 47% shrinkage.
Speaking on the findings, Opus Senior Business Advisor, Nick Hood commented, “The UK travel industry is going through a welcome post-pandemic renaissance in 2023, but the concern is whether a sector with such fragile finances can cope with this level of strong growth without there being casualties from over-trading.”
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