Big holiday companies and their shareholders have got much more to worry about than Brexit


It has been a torrid week for the travel industry as two of the biggest players in the UK and wider European market reported decidedly shoddy results.

On Wednesday Tui, which until 2017 operated in the UK as Thomson, reported half-year losses had swelled from £148million to £261million. Then today Thomas Cook topped that with a £1.46billion loss.

The holiday companies like other types of business, most notably retailers, are very quick to blame one thing in particular. You guessed it, Brexit.

It has been a torrid week for the travel industry as Thomas Cook and Tui reported decidedly shoddy results

It has been a torrid week for the travel industry as Thomas Cook and Tui reported decidedly shoddy results

As sure as night follows day, when you run your eyes through a less than impressive set of results for a UK company the B word will feature.

Now, it is not entirely unreasonable to mention Brexit. It is true the lengthy process and related uncertainty has had an impact on the ability of both businesses and individuals to commit to financial decisions.

The issue with it is that it is being used in many cases as a ‘get out jail free card’ to try and cover for other shortcomings. It is far easier for company bosses to highlight something which is totally out of their control as the reason for their troubles than admit it is their fault.

It is also much more attractive to portray your difficulties as the result of something transient that will pass in time, as Brexit eventually, theoretically will (even if it is doesn’t seem like it).

The truth however is that Brexit is one part of a complex picture, and it may be a small part in the case of holiday companies.

Of even less credibility is the claim a ‘hot summer’ has counted against them. This is very difficult to prove one way or another but it seems a stretch to suggest a large number of people see less merit in getting away on holiday somewhere if it’s warm at home.

I’m sure some people go to Spain or Greece simply because it’s usually hot there, but there is far more behind most people’s proclivity to visit other parts of the world than the weather.

First and foremost the motivation is to see new things and immerse yourself in a different environment, with getting a tan being a secondary goal.  

Of far more importance is the underlying business model of the holiday firms. It has not significantly changed for decades. It has been tweaked and trimmed around the edges but it needs wholesale change for a few key reasons.

Firstly, it has not yet truly stepped up to the challenge from online only travel companies. Having no bricks and mortar presence makes them much cheaper to run. A simple but inescapable fact.

The traditional agents will always struggle to compete on price alone so must aim to compete on service, personal tailoring and the like.

Next there is suspicion that the brands of the traditional travel agents are seen as dated and tired and badly in need of a revamp. This was pointed to by the dropping of the Thomson brand in favour of parent company name Tui, but much more than that is required.

Another difficulty is terrorism, or more specifically the fear of terrorism. In recent years there has been a consistent string of high profile attacks on Western tourists across the North African countries where the likes of Thomas Cook did a large amount of their trade, and most recently in Sri Lanka.

This is largely out of their hands, but the travel companies can work with the foreign office and security services to minimise risks and educate potential tourists better.

More challenges are lurking around the corner. We have only just started to see the beginning of action against climate change.

Air travel is one of the biggest drivers of carbon emissions and seems certain to face a huge green tax clampdown

Air travel is one of the biggest drivers of carbon emissions and seems certain to face a huge green tax clampdown

Air travel is one of the biggest drivers of carbon emissions and seems certain to face a huge green tax clampdown as the politicians seek to demonstrate they are taking action.

This is not good news for travel companies. Holiday prices will have to go up if these kind of taxes come in as seems likely.

It will of course be the people in the middle and lower income brackets who will have to reduce the frequency of their air travel and holidaymaking as a result; precisely the customers big mainstream travel agents rely on.

The wealthy will continue to travel on planes as much as they like of course, able to pay whatever the price is, but they don’t tend to use the high street travel agents.

A separate but related issue in the oil price, with many reasons to believe it could rise a lot over the coming years. That would put an additional squeeze on airlines and the travel firms that rely on them.

These companies are far from beyond saving, but the time has come for radical change if they are to prosper and their share prices are to head skyward again. 

I won’t be putting my money into them any time soon.

 



Source link