STA Travel Becomes Another Victim of Corona Crisis; An Insight on TUI AG and Carnival PLC

Summary

• The tourism economy has been heavily hit by the Covid-19 pandemic, and measures introduced to contain its spread
• STA Travel, offering package tours for backpackers and adventurous young people, has become the latest company to announce its shut down
• A coordinated approach from the government and the industry is required to rebuild the industry

Most of the countries have considered tourism as a contributor to economic growth over the past years, and is widely accepted that year after year, a massive investment continues to pour in its development worldwide. But unfortunately, the industry has been heavily hit by the Covid-19 pandemic, and measures (lockdown restrictions) introduced to contain its spread. The World Travel and Tourism Council has warned that the pandemic could lead to job losses of approximately 50 million across the globe in the travel and tourism industry.

This impact of the crisis depends on how long the pandemic lasts and could still be exacerbated by recent restrictive measures. Depending on the duration of the crisis, revised scenarios indicate that the potential shock leads to a huge decline in the international tourism economy in 2020. Apart from the immediate measures to support the tourism sector, countries are also shifting to develop recovery measures. These include considerations on lifting travel restrictions, restoring travellers’ confidence and rethinking the tourism sector for the future.

The coronavirus pandemic has forced yet another company to discontinue its operations. STA Travel, which used to offer package tours for backpackers and adventurous young people, has become the latest company to cease the operations. Posting on its Twitter account, the company stated about its recent announcement of the cessation of STA Travel UK activities, apologising for the inconvenience caused to its customers. It has been licensed to carry around 30,000 package vacationers per year under its Air Travel Agent License (Atol), went into administration on 20 August 2020.

Headquartered in central London, it employed around 500 people in 50 high street branches across the United Kingdom. STA Travel was established in 1979, in Melbourne, by two Australian backpackers. Originally known as Student Travel Australia, it was later renamed as Student Travel Association, and then finally came to be known as Start the Adventure.

As per the association for the UK travel industry, Abta, customers have used STA Travel to book package holidays as well as individual plane tickets, and most of the vacations sold were packages including the flight, which were protected by Atol, and regular plane tickets only, would proceed normally. He also added that if customers had booked a package holiday through STA Travel and the stay is provided by another tour operator, they will be required to contact the tour operator, regarding their confirmation.

The Civil Aviation Authority (CAA) commented that it was aware of a number of consumers whose reservations had been cancelled by STA Travel Ltd, resulting from the advice of the government or flight cancellations.

The company announced to shut-down its operations after Qantas announced that it would be halting its operations of intercontinental flights to and from Australia until H2 2021. The month of August also saw Voyager Travel Direct, a Sheffield-based online company, ceased its operations. Sixteen companies protected by Atol had gone bankrupt since March, according to the CAA.

With the ongoing crisis in the present scenario, let’s have a look at the performance of some of the stocks of the travel and tourism industry.

TUI

Based in Germany, TUI AG is an integrated tourism group, which is the largest leisure, travel and tourism company in the world and is very popular in the United Kingdom, offering a wide range of services and is the owner of travel agencies, hotels, airlines, cruise ships and retail stores. It offers Britons with great holiday packages across the world at pocket-friendly prices.

On 13 August 2020, the company released its quarterly result for the year ending on 30 June 2020. The Group reported a slump in the revenue of 98 per cent to €75 million, reflecting standstill business for most of the quarter with partial operations successfully resumed from mid-May. Ease in the lockdown restrictions worldwide resulted in the reopening of 55 hotels in the quarter. All of its three Cruise operations remained suspended throughout the quarter. The Group recorded an underlying EBIT loss of €1.1 billion because of the suspension of business, impairments triggered by Covid-19, and net costs arising from ineffective hedging contracts.

Stock Performance

TUI AG (LON:TUI) stocks last traded at GBX 308.20 on 21 August 2020, up by 4.76 per cent from its previous close. The 52-week low/high range was GBX 254.00/1,081.50. It had a market capitalization (Mcap) of £1,732.90 million. The company recorded a negative return on price, which was 68.91 per cent on YTD (Year to Date) basis.

Carnival PLC

Headquartered in Miami, Carnival PLC is a travel and leisure group that operates cruise. The Group has nine cruise brands under its portfolio.

On 10 July 2020, Carnival PLC released its half-yearly results for the period ending on 31 May 2020. The company reported a decline in the revenue to US$ 2,383 million in H1 2020 from US$ 4,073 million a year ago. The passenger ticket contributed USD 3,680 million to total revenue. There was a decline in the operating cost to US$ 6,007 million in H1 2020 from US$ 6,301 million a year ago. Carnival incurred an operating loss of US$ 4,891 million in H1 2020 in comparison with the profit of US$ 902 million in H1 2019. The net loss stood at US$ 5,155 million for the period, whereas the Group earned a profit of US$ 787 million in H1 2019. The basic loss per share recorded by the company was US$ 7.34.

Stock Performance

Carnival PLC (LON:CCL) stocks last traded at GBX 924.40 on 21 August 2020, down by 2.08 per cent from its previous close. The 52-week low/high range was GBX 605.00/3,859.00. It had a market capitalization (Mcap) of £1,654.16 million. The company recorded a negative return on price, which was 74.66 per cent on YTD (Year to Date) basis.

Conclusion

The impact of the crisis is being felt across the entire tourism industry. A coordinated approach from the government and the industry will be required for the reopening and rebuilding of destinations. Attention should also be given to the most sensitive/vulnerable destinations in the recovery phase.