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Company Rescue Answers How Travel Companies Can Survive COVID-19

Travel companies need to adapt and change to survive the pandemic. They will need to have a tight control of costs and know what their options are if cash starts to run out.


News provided by

Company Rescue

Jun 25, 2020, 07:00 ET

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LONDON, June 25, 2020 /PRNewswire-PRWeb/ -- Following the travel restrictions, lockdowns and quarantines the travel industry has not seen a difficult time like this, since the second world war. Obviously, this is a very challenging time for all those concerned.

The situation now, for most companies, is they are being supported by the Government in multiple ways. Using government parlance, they have "thrown a protective ring" around companies and businesses.

No-one can predict with much certainty what travel will look like in the future, but it is likely that stay-cations and small group holidays will come to the fore, at least in the short term.

Post this
  • Furlough scheme for employees
  • Business Bounce Back Loans and Coronavirus Business Interruption Loans (CBILS)
  • Business rates freeze, where applicable
  • VAT deferred until March 2021 for quarters due before lock down
  • Extra time to pay for other taxes such as PAYE
  • Legal action by creditors halted if debts due to pandemic. There is a ban on issuance of winding up petitions by landlords currently scheduled until June 30th
  • Changes have been put to parliament for insolvency laws with regard to wrongful trading by directors. A possible pre insolvency moratorium is being debated in June 2020.

But How Do We Start Again?

One overriding problem the travel industry has, which is more prevalent is the issue of customer deposits. Most customers buy their holidays a long way in advance and so deposits are taken from customers. Faced with a sudden loss of income from new bookings there is immediate cash flow pressure when people want their money back for old bookings. New bookings have also dried up. Double whammy.

Most firms do not operate a trust account system and this means that deposits are not ringfenced for the customer if the event is cancelled. Rather, the payment is protected if the company fails or becomes insolvent by ABTA, ATOL, ABTOT, insurance companies and often by merchant service providers who facilitate the card payment on debit or credit cards.

This guide does not address that issue or how a refund credit note can be offered or the date for RCNs to be extended. Rather, it addresses what should struggling operators do, now that cash is drying up and an avalanche of refunds is due?
Most of the above provide cover for the customers in the even of a formal insolvency event such as company voluntary arrangement, liquidation, administration or pre-pack administration.

These insolvency actions would automatically trigger a full refund of deposits of full payments made by the customer. Thus, it can be strongly argued that if the company simply doesn't have the cash to pay the customers back then a full refund can only be provided if the company enters an insolvency process.

This would achieve the objective of maximising the interests of creditors as whole which is a UK legal requirement for directors of insolvency companies. We would strongly advise all company's boards to consider all other options very quickly, and to speak to qualified insolvency advisors like KSA first, we can advise on these options.

Perhaps operators have tried to get refunds from airlines, hotels etc. but all are suffering similar problems of poor cashflow. Where no money can flow back to the customer due to suppliers not able to perform their end of the contract i.e. hotels, flights, etc then your customer can make a claim against their credit /debit card. Obviously, this could lead to clawback of funds from any designated accounts the operator holds for the merchant service provider. This can be a huge and very sudden blow to cash. An insolvency process can halt this cash outflow.

The question really for travel companies is how will they trade going forward?

Cut Costs

During the lockdown the best thing to do is to try and reduce your costs as much as possible. So negotiate with the landlord, suppliers, cancel agreements that assume you are trading as usual or are able to use – you will be surprised at how many there are such as car insurance/tax, parking spaces, office service charges etc.
Cut employment levels. When furlough ends what will all of the returning employees be doing? You should start redundancy programmes as soon as you can.

If there is insufficient cash to meet costs cutting and redundancy objectives you should consider using a company voluntary arrangement or administration which can terminate those payments, cut costs and restructure debt arrears.
Think about what your customers will want in the future

No-one can predict with much certainty what travel will look like in the future, but it is likely that staycations and small group holidays will come to the fore, at least in the short term. In fact, it has already been hinted that small holiday groups will be allowed.

If you run a travel firm and you have concerns about forward trading and/or the ability to refund clients, if requested to do so, and these are unaffordable, you should be seeking advice. There are options available to you and as a company director you are required to maximise the best interests of the creditors (your clients if they have made part or full payments in advance of travel) and understand the various mechanisms available to you.

We are currently advising various firms in the travel/leisure sector on the various scenarios facing them.

SOURCE Company Rescue

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