Changing Landscape of Travel and Related Businesses

  • Jul 02, 2020 BST
  • Team Kalkine
Changing Landscape of Travel and Related Businesses

Summary

  • Billions were wiped out of travel & leisure industry businesses since the travel restrictions were imposed
  • An uptick is expected for UK’s travel and related businesses given the prospects of air bridges and easing restrictions on social distancing
  • Sector Players are all focussed on maintaining a robust liquidity position in the face of uncertain operating landscape and expect a significant recovery to come into play by the end of the year

The landscape for the once flourishing travel & leisure industry has changed a lot in the post-pandemic era as billions were wiped out of the industry due to the economic impact of the novel coronavirus.   The easing of lockdowns and controlled coronavirus (COVID-19) cases in the United Kingdom has encouraged a modest increase in economic activity.

Tourism, Hospitality & Leisure businesses are heavily reliant on the travel industry. As the travel restrictions were imposed in the mid of the March to contain the spread of the Covid-19, these businesses struggled with a liquidity crisis. These businesses were further burdened with their fixed costs such as rents amid the coronavirus crisis.

Popular food outlets, Caffè Ritazza and Upper Crust, owned by SSP Group Plc (LON: SSPG) recently announced plans to reduce its employee base in the United Kingdom by more than 50 per cent due to the impact of the coronavirus crisis, which has led to a dramatic fall in the number of travellers. These food outlets are based at airports and railway stations.

The leading operator of food and beverages outlets has nearly shuttered its shops in the UK. The ground reality is that the passenger numbers are still at very low levels, 85 per cent lower (Year on Year) in the rail sector. The UK Air sector has been non-operative for most of the time. The Long-haul travel is expected to be at extremely low levels due to lack of consumer confidence; however, the introduction of air bridges and the start of the holiday season may lead to a limited return of short-haul air travel demand this month.

The company plans to open only 20 per cent of the outlets by this autumn. The company has earlier accessed the Job Retention Scheme (JRS) launched by the British government. The recovery in commuters numbers in the rail sector is anticipated to be delayed due to the current social distancing measures remaining in place. However, the Group is confident of its liquidity position to see through this critical period. The shares of the SSP Group took a real beating as they nosedived by more than 62 per cent on the Year to Date basis.

It’s not one of a case, the books and stationery store chain, WH Smith Plc (LON: SMWH) reported a plunge in Group’s revenue by 85 per cent for the month of April in comparison to the same period last year. As a result of travel bans and a significant decline in passenger numbers, the vast majority of the company’s stores at airports and railway stations have been temporarily closed.

The company has successfully raised almost £166 million from investors to bolster its liquidity position amid the extraordinary catastrophe caused by the novel coronavirus. The shares of the WH Smith took a real beating as they nosedived by more than 59 per cent on the Year to Date basis.

A few weeks earlier, the British Beer and Pub Association (BBPA) called for a dedicated bailout package from the British government, as the pubs could not make it to the priority list of lockdown easing and are last to reopen on 4 July 2020.

The outbreak of the novel coronavirus and actions taken to limit its spread have pounded key industries, spoiling the global economic activity, and threatening recession for economies across the world. The British economy has been grappling with supply disruptions, job losses, falling sales and profits, trade, and travel halts are key virus-driven problems.

Government’s stand on the industry

The British Prime Minister, Boris Johnson said earlier that the UK has a reproductive rate (R), which is measured to gauge the spread of the virus, is less than one. He also believed that the UK had passed its peak with reference to the pandemic. However, the risk of a second wave of the coronavirus can not be ignored. As a result, a 14-day quarantine regime was announced when lockdowns were lifted.

Major leisure and entertainment industries shut their operations after the government’s announcement of restricting non-essential outdoor activities from 23 March 2020. The World Travel and Tourism Council (WTTC) has warned earlier regarding 50 million job redundancies in the travel and related industries due to the economic impact of Covid-19.

However, hard-hit industries like tourism & leisure are still subdued as people are wary of travelling or moving around. It was not enough, that the British government announced a two-week quarantine regime for the incoming travellers, a few weeks ago. This scheme is expected to impact the consumer confidence in a negative way, which would be detrimental for the businesses which are dependent on the people coming from around the world such as entertainment, leisure and tourism-related travelling.

Market participants are expecting a small gap until the leisure and tourism industry show major signs of recovery after the virus led to wiping off billions-worth of national income from this industry in recent months. Making things worse, the travel industry has unilaterally amended their cancellation conditions, offering credits instead of cash refunds.

The way forward

The length of the outbreak and how quickly demand bounces back will determine the true state of the businesses dependent on the travel sector. The business closures have already pushed thousands of workers out of their jobs. With nearly zero interest rates and several support schemes existing in the economy, the government is doing whatever it takes to support the sector.

In addition, the British government has announced ‘air bridges’ between neighbouring countries, which is good news for the sector. These air bridges, which are expected to be in place from the first week of July onwards, would act as dedicated travel corridors between European nations. The quarantine regime earlier announced by the British government is likely to be suspended and the industry expected to be back on recovery path by the end of this year (2020).

 


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