Virus Outbreak in Adelaide Deals A Fresh Blow To Travel & Tourism Sector

  • November 23, 2020 02:58 PM AEDT
  • Hina Chowdhary
    Hina Chowdhary
    Director, Equities Research Hina Chowdhary
    1706 Posts

    Hina Chowdhary is the Director, Equity Research at Kalkine and has an extensive experience of about 15 years in the area of Research, which includes 5+ years in Equities Research particularly.She has earned a Master of Science degree from the renowne...

Virus Outbreak in Adelaide Deals A Fresh Blow To Travel & Tourism Sector

Summary

  • In the wake of coronavirus outbreak in South Australia’s Adelaide, many state governments have resorted back to border closures, dealing a blow to the already struggling travel and tourism industry.
  • Further restrictions have been placed for travelling to South Australia.
  • Travel distribution company Helloworld (ASX:HLO) has reached a deal to acquire cruise wholesaling specialist CruiseCo and renewed its partnership with Qantas.
  •  The September quarter report of HLO has highlighted the impacts of the ongoing crisis.

Ever since the pandemic hit the world, the travel and tourism industry has struggled to remain relevant in the age of social distancing and travel restrictions. As if earlier setbacks were not enough, the latest border closure to South Australia by many other states has added to the troubles of the industry.

South Australia is witnessing its first major coronavirus outbreak since April 2020. In the wake of this outbreak, all schools and shops have been closed across the state. Contact tracing efforts are also going on in full swing by authorities. To know more, read here: High alert in South Australia after first coronavirus outbreak in months

Owing to the new wave of infection, four states have closed their borders to the Festival State. The latest coronavirus attack has been reported in the backdrop of extremely positive news concerning the development of potential coronavirus vaccines by Pfizer and Moderna.

Pfizer and BioNTech have announced that their mRNA-based vaccine candidate BNT162b2 has been found to be 95 per cent effective. Moreover, they have lodged an application with the FDA for emergency use authorisation for their vaccine. Meanwhile, Moderna Therapeutics has also reported that its novel coronavirus vaccine candidate is nearly 95 per cent effective against the deadly infection.

Latest Border Closures - A Setback to Australian Travel and Tourism Industry

The travel and tourism industry is among the most affected sectors due to the COVID-19 outbreak. So much so that that the federal government support to the sector could not help much as it could not resuscitate amid the ongoing pandemic. Every time, the industry plans to restart afresh, new cases paralyse the efforts. 

Must read: Australia Gears up for Tourism 2.0: What's Lies Ahead?

For the upcoming Christmas festival, all the states are gearing up to re-open their borders. However, the new wave in South Australia has led to challenges, which are indeed disheartening for the industry.

New Restrictions on Travelling to South Australia

The travellers who are planning to go to South Australia are required to complete a Cross Border Travel Registration. The travellers must complete the registration at least two weeks before the travel begins, and it is applicable to: 

Also Read: Why is South Australia lifting the lockdown earlier than expected?

After this sneak peek into the current pandemic situation in the Festive State of Australia, let us discuss an ASX-listed company from the travel space.

Helloworld Travel Limited (ASX: HLO) is a leading travel distribution company in Australia and New Zealand. It comprises air ticket consolidation, retail travel networks, online, and corporate travel management, inbound destination management and wholesale travel services.

Helloworld to Acquire CruiseCo, Renews Partnership with Qantas

On 23 November 2020, Helloworld announced that it has entered an agreement to acquire specialist cruise package wholesaler CruiseCo. The deal to be funded from existing cash reserves is in accordance with the company’s strategy of expanding its cruise offerings in Australia and New Zealand.

Additionally, the company has executed a three-year commercial agreement with Qantas, thereby renewing their collaborative partnership. The agreement will involve the sale of Qantas’ fares and products until 2023.

September 2020 Quarter Trading Update 

Late-October 2020, Helloworld released its trading update for the September 2020 quarter. The impact of the COVID-19 pandemic has been evident on the results.

Based on unaudited management accounts, TTV was down by 90.6 per cent year-on-year to AUD 176.8 million. Revenues declined by 86.8 per cent to AUD 12.4 million. Underlying EBITDA loss stood at AUD 4.1 million. The figure was below the AUD 6 million forecast loss for the period.

By the end of September 2020, the company had free cash of AUD 105 million. It prepaid AUD 20 million of its bank debt on 23 October 2020, which reduced free cash to circa AUD 85 million and expanded the headroom for undrawn debt by the amount of the prepayment to circa AUD 29 million. It will reduce the interest expenditure by nearly AUD 420,000 per annum.

Outlook

The company is anticipating aggregate TTV and revenues from travel operations to be around 10-15 per cent of previous levels until early 2021.

Helloworld is expecting the re-opening of the east coast domestic travel market by the end of this year and broader trans-Tasman market from mid-December 2020. In the first half of 2021, Pacific Island bubbles may open up with Australia and New Zealand, while WA has committed to keeping its borders closed until April 2021.

Based on the expectations, HLO will continue to incur underlying EBITDA loss of AUD 1.5 million - AUD 2.0 million per month for the coming six months. According to the company, it has sufficient liquidity to maintain operations well until 2022 or longer.

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

 

 


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