Or could it be that by apportioning blame to the long-running saga, they’re seeking to distract investor attention from the underlying issue? Namely, that changes in consumption patterns pose, if not an existential threat, then a major challenge to conventional travel agents, even those which readily adopted digital platforms.
Nothing but bad news has been coming out of the sector over the past week. The first casualty was TUI Group (TUI), which posted a €287m (£254m) half-year loss, a 34 per cent increase from the comparable period in FY2018, while confirming a potential one-off hit of €300m to full-year results due to the grounding of Boeing 737 Max aircraft. Summer bookings were down on the prior year and the gross margin dropped by 190 basis points to a painfully thin 2.3 per cent. Earlier this week, the group launched a last-minute sale of listed breaks in May and June at bargain prices, so the margin squeeze is set to continue.
Things aren’t any better at Thomas Cook (TCG), where staff members have been taking to social media in a bid to reassure punters that it’s “business as usual” ahead of the summer holidays. Last week, the travel group’s share price collapsed after it revealed a £1.5bn first-half loss following a reassessment of the carrying value of goodwill and brand name intangibles.
Matters weren’t helped when analysts at Citigroup ascribed “zero equity value" to the stock, although management was able to blame falling summer bookings on “political uncertainty related to Brexit”. As pointed out by auditor EY, perhaps the real uncertainty that bosses should be worrying about are valuations linked to the sale of its airline, on which a new £300m bank facility depends.
The group’s net debt position stands at £1.25bn. It’s also in a negative equity position with an interim net cash outflow of £711m, although given the inherent seasonality of the business, we would normally expect that to turn around over the second half of its financial year. But that’s by no means a given. With its summer 2019 programme only 57 per cent sold, it seems likely that it, too, will be forced into some heavy discounting – little wonder that the underlying gross margin was down 180 basis points.
You might instinctively resist the notion that a business that started in the same year Dr Livingstone got his first posting in Africa could be in danger of going under, but do its troubles point to wider industry malaise? It’s no secret that digitalisation has fundamentally altered the way most of us organise our leisure time. ABTA reckons that four in five people book their holidays online, although that’s overwhelmingly on a laptop or tablet as opposed to a smartphone. Just one in eight people booked on a mobile phone in 2018, compared with one in five in the previous year.
Travel and booking agencies have evolved in the face of digitalisation. All the large agencies have responded to the challenge, but as we’ve witnessed among the realtors, online commissions invariably get squeezed over time. For consumers, online commerce leads to greater price discovery and the ability to bypass agents and deal directly with vendors. That’s why an estimated 87 per cent of the ‘shopping bags’ of consumers searching for holidays online never make it through to the checkout area.
