London leads the way for growth but risks abound
by Rory Traynor
The coronavirus outbreak continues to spread throughout nearly every region of the world, and its impact on the travel industry is significant.
That’s why global aviation firm John Menzies has warned that its annual profits could take a £6m-£9m hit if the situation doesn’t improve soon. While Menzies stated that it was “well-positioned to manage effectively,” that’s not the case for many other businesses within the industry.
Many companies are left wondering what they could have done to predict and prepare for an event like the coronavirus. With this in mind, let’s look at the unique challenges the travel industry faces, the potential impact for travel-related companies, and how businesses can leverage data as a preventative measure in the future.
The Travel Industry Dynamics at Play
The coronavirus is negatively impacting airlines, cruise lines and other travel-related companies affected by the industry (such as hotels and restaurants). A significant contributor is the approach that the UK and other governments are taking to contain the outbreak. Many health experts hope that by discouraging people from travelling until the warmer summer months, the spread of the virus will stall. While this is sensible from a public health standpoint, it’s likely to seriously damage travel agents and other companies that rely on travel in 2020, especially when there is so much uncertainty during the February and March booking period.
Travel restrictions and trip cancellations are a challenge many companies in the travel industry are currently facing, but there’s another issue—fewer people are booking future trips. Travel agents in particular are in a critical situation because they often make bookings upfront, and many of these will go unrealised.
For many travel agents and companies with poor financial health, insolvency is a genuine risk. Airlines and cruise lines, for example, make massive investments in aircraft, ships, and other assets that are debt-financed, and now they’re not bringing in the cash necessary to service these debts. Only companies with robust financial health are ready for the potential impacts of coronavirus on the travel industry.
Potential Impact on Travel Companies
For many travel companies, the consequences of the coronavirus and other unpredictable events are likely to be serious. And for travel agencies in particular, the impact could be substantial.
Southall Travel Ltd, the 11th largest UK travel agency, faces a challenging financial situation. The company has narrow margins, and they’ve continued to get worse over the years. In addition, Southall’s liabilities far exceeds its equity and is trending in the wrong direction. The combination of narrowing margins and poor liquidity means the company is at risk.
In short, this is a vulnerable company which could fail to recover from a sustained period of slow business due to the coronavirus. For this reason, we have given it a One Red Flag rating.
Businesses Should Be Monitoring Their Supply Chain and Customers
The coronavirus has revealed how tenuous an entire industry can be; many businesses are one negative event away from failure. That’s why companies should be using data insights from a business intelligence platform like Red Flag Alert to monitor clients and supply chains.
With Red Flag Alert, companies can track the financial health of their supply chain and customers in real-time to manage risk effectively.
For companies selling services into the travel sector, from hotels to recruitment agencies, Red Flag Alert provides a clear insight into the financial health of key travel companies. This means that when an unexpected event hits, users can immediately see which businesses are going to be most affected.
For further guidance on the steps you can take to minimise the impact of the coronavirus on your business, read our recent article here.
Discover how Red Flag Alert’s experienced team can help you mitigate risk and protect your business. Why not get a free trial today and see how Red Flag Alert can help your business?
