The Big Cash Squeeze

In the next 12 months, the UK Travel industry faces the biggest squeeze on cash flow, that I have seen in my 30-year travel career.

Many companies improved cash flows in Summer 2020 by issuing “Refund Credit Notes” to be utilised in Summer 21 and had hoped for a rush of new bookings, as we exited Covid-19 restrictions and outbound travel was allowed from the 17th May

This is still broadly the road map, but the industry is expecting a very limited number of “Green Destinations” with the mass market Spanish, Turkish and Greek volume drivers likely to be classified “Amber”.

Travelling to Amber destinations will be expensive in terms of testing, requiring an outbound PCR or Lateral flow test, followed by a lateral flow 72 hours before returning and 3 PCR tests to use the shorter 5-day test to release scheme. Even with a half-price £60 PCR test via Randox, this still equates to an extra £280 per person in testing costs. Customers who are already committed to a holiday may decide to pay the extra and travel, but will customers who have not booked yet?

My view is a firm no and I’m predicting travel in May/June will only be 15% of 2019 levels.

Jet2Holidays seem to agree and have cancelled all holiday departures until the 24th June. To me, this is sensible as it allows them to deal with refunds now and prepare for a peak season starting 1st July. From this date, I remain hopeful that the UK population will receive a vaccination bonus and travel to most major beach destinations for the school holidays and beyond.  

However, the Government will not update the 17th May traffic lights destinations until the 30th June, creating uncertainty for airlines and ultra-late bookings conditions, which I believe will suppress flight supply down to 50-60% of 2019 levels.

Although Summer 21 may still happen, “Refund Credits Notes” remain a noose around the neck of many businesses working capital, squeezing available cash. If travel does restart, then suppliers will have to be paid and if not, customers will need refunding, so cash flows will be hit either way. Only new bookings improve cash flow the volume of these is under serious threat.

Low deposit schemes mean Summer 22 bookings only deliver 20% of the cash flow benefit of a late availability sale, so even a buoyant Summer 2020 does not ease the cash squeeze.

Working cash will be lower than normal through entering the quiet winter months and this is likely to be when travel failures peak.

The biggest squeeze on cash flows yet to impact is being imposed by the CAA who are tightening “Trust fund” rules markedly, with agents commission no longer payable until customer return under the new “Golden Trust” being forced on the industry.

In September the CAA will try to force Jet2 Holidays and Easyjet Holidays into the same trust fund structure already imposed on Tui. This will cause a massive squeeze on their working capital as their tour operating divisions will not be able to pay for flights on booking, with cash only released on customer return. The big airlines clearly have better lobbying and power than most travel companies to fight this, but legally the CAA are forced to operate a level playing field and it’s difficult to see how such a move can be avoided.

Debit and credit card, Merchant clearers are also nervous about the travel sector, with some pulling out completely and others holding on to cash for longer as a buffer against potential refunds resulting from further Covid-19 disruption.

It’s may not be a “perfect storm”, but the Covid-19 pandemic has left the travel industries finances in a perilous state, with many factors creating a massive squeeze on the lifeblood of business, Cash!

It’s not all doom and gloom, but we have a rocky ride ahead of us over the next 12 months as we try to ride out “The Big Cash Squeeze”.