Tourism Sector's Challenges And Strategies During Covid-19 Crisis

Tourism Sector's Challenges And Strategies During Covid-19 Crisis

Summary

  • The government was expecting interstate travel to resume by July, but new cases in the country are being closely monitored, also posing a threat to anticipated AU-NZ travel bubble.
  • NSW has temporarily shut its borders with Victoria to prevent NSW from getting new cases.
  • The crisis is so vast and lengthy that the support packages and job keeper scheme are not enough for employees and businesses to survive.
  • Auckland Airport made a massive cut in expenditure and enhanced its liquidity by raising AUD 1.2 billion equity.
  • Flight Centre Travel Group received access to a debt facility of GBP 65million for its UK business.

The global tourism sector came to a standstill with travel restrictions and lives confined into homes during the lockdown. It was similar for the Australian tourism sector, which was already trying to recover from the impacts related to bushfire.

Post the May peak when the cases began to reduce, Prime Minister Scott Morrison was eager to restart the tourism industry by encouraging domestic travel. He was expecting interstate travel to resume by July as Australia could flatten the curve early and there were very few cases being reported.

That said, now with resurgence of new cases in the country, especially Victoria state, all these plans seem to be in vain. After the second lockdown in Victoria state, NSW has temporarily shut its border with Victoria to prevent virus spread.

Referring to the coronavirus cases in Victoria, AMA President, Dr Tony Bartone said that other states should rethink about the pace of easing the Covid-19 restrictions.

Also read: Australia Covid-19 restrictions, What is allowed and what is not

Premier Gladys Berejiklian has confirmed that this decision was taken after consulting the NSW Chief Health Officer, Victorian Premier Dan Andrews, and Prime Minister.

“The NSW people have done an incredible job in curbing the virus spread, which allowed the state to reopen the economy. New rising cases in the Victoria possess a threat to NSW if the borders are not closed, hence the decision was taken to protect the people of NSW”, said Ms Berejiklian.

Despite the support packages from the Federal and state governments, the tourism sector is signalling several job losses and devastating impact, the only relief being extension of coronavirus wage subsidy scheme.

Govt's packages for tourism sector during COVID 19

WA government provided AUD 14.4 million initiative for two programs to support small operators in the industry so that they can refocus on the business during the challenging times. As per the package, initial AUD 10.4 million WA Tourism Recovery Fund includes one-off cash grants of AUD 6,500 for up to 1,600 individual small businesses. Besides, AUD 4 million Tourism Business Survival Grants package was dedicated for operators facing extremely challenging times due to the virus crisis, with grants between AUD 25,000 - AUD 100,000.

Like other sectors, JobKeeper Payment is also applicable to the tourism sector to help the industry during this unprecedented crisis. The payment is available between a period of 30 March 2020 to 27 September 2020. Australian Taxation Office (ATO) started sending payments to the employer from the first week of May. Under the scheme, the employees get AUD 1,500 through their respective employers.

In such challenging times, let us discuss a few tourism companies to understand how they are dealing with the tough times and what are the strategies they are implementing to survive during coronavirus crisis.

How is Auckland Airport handling the outbreak of Covid 19?

Auckland International Airport Limited (ASX:AIA) acted quickly for handling crisis from its onset with increased liquidity, suspending or terminating capital expenditure and reduced operating costs.

Amid the considerable uncertainty due to COVID-19 and the travel restrictions, during the mid-March, AIA suspended underlying earnings guidance for FY20. Below are some of the strategic initiatives by the company:   

Enhanced liquidity:

  • Gained AUD 1.2 billion of equity.
  • Extended bank debt maturities until calendar 2022 and 2023.
  • Received financial covenant waivers until 31 December 2021 for bank and United States Private Placement borrowings.

Related: Auckland International Airport Limited Announced NZD 1.2 billion of Equity Raising

 Reduced expenditures: 

  • External consulting work suspended, and staff changed across the business.
  • Directors and executives' remuneration, and other employees’ salaries/hours reduced to 80 per cent.
  • Implemented hiring and salary freeze, and suspended bonuses and other short-term incentives for this year.
  • Selected capital expenditure projects were suspended with a forecast completed value of more than AUD 2 billion.

Chief Executive Adrian Littlewood's comments on the unprecedented crisis: “During the most disruptive crisis of the aviation industry in history, AIA's top priority remains the health of employees and those who travel through Auckland airport. “

“Auckland is a resilient business, but this is an unprecedented crisis for global aviation, and AIA continues to be materially impacted.”

Recently, Auckland Airport has reduced the workforce by 25 per cent that also includes releasing 90 contractors connected to the capital programme. Further staff reduction is expected in AIA's infrastructure and its operations team.

On 10 July 2020, AIA last traded at AUD 5.82, down ~1%.

Flight Centre Travel Group received access to additional funding through debt facility

To offset short-term coronavirus impact on United Kingdom business, Flight Centre Travel Group (ASX:FLT) has acquired access to a debt facility of up to GBP 65million. FLT will withdraw from the debt facility as and when required during the ongoing crisis. 

The funding is made available through the Bank of England's Covid Corporate Financing Facility. The program is set-up to aid the firms during the disruptive virus crisis. 

The first notes issued will mature in March 2021, and it can be extended for a further of 12 months through the issue of additional notes under the facility.

On 10 July 2020, FLT last traded at AUD 10.540, down by 2.5 per cent.

 


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