Travel agent and tour operator insolvencies

The travel sector, which employs 500,000 people, has struggled to get back on its feet due to the many obstacles for international travel. In July alone, travel sector insolvencies jumped from one to nine, suggesting a deteriorating situation for the industry. 

Many smaller travel firms used up their cash reserves during the lockdown. Also, travel companies that deal with travellers for business or education have been hard-hit.

Cashflow challenges

The figures suggest the crisis with the travel sector is far from over. Despite an increase in demand, many travel agencies face a shortage of cash with which to operate and a shortage of options for credit.

The end of furlough is likely to compound the industry’s problems, forcing travel firms to pay the total wages of all their employees for the first time since the start of the pandemic or make staff redundant. This is likely to cause issues for many operators, as travel is still a long way off normal levels.

Data from the year ending July 2021 reported travel to key destinations is well below pre-pandemic norms. For instance, Aena reported that in July 2021 air travel to Mallorca was 40% down on 2019.

Travel agencies and tour operators which specialise in specific destinations are even harder hit. Many countries in Africa and Latin America remain on the UK Government ‘Red List’ or are not open to foreign travellers.

ABTA bond

To further compound the difficulties that travel companies face, ABTA can increase the level of bond required when they are concerned that a travel company is suffering losses or poor performance. Still, the increased bond puts further pressure on cash flow for a struggling business.

In addition, the end of the ban on winding up petitions on October 1st means that travel agencies who owe more than £10,000 may face demands to pay up or be wound up.

The insolvencies managed by Mazars Restructuring team to date are likely to be the tip of the iceberg. In many cases, furlough support has been the only thing keeping travel businesses going. Now, these firms have to pay their whole wage bill and may find creditors knocking at the door.

The Association of Independent Tour Operators (ATTO) has claimed that Government policy has worsened their problems with frequent changes to the green, amber, and red travel lists. AITO has also called for access to cheaper Covid-19 tests.

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