TravelMole Guest Comment: Travel industry needs a break

Caroline Rifkind, PricewaterhouseCoopers LLP, believes the travel industry is trapped in a vicious cash circle.

"Following the onslaught of the credit crunch and the consumer downturn, the travel industry is in need of a break. From the collapse of XL in the autumn of 2008, through to the shock news that Goldtrail has fallen into administration, there has been no respite for a sector constantly adapting to changing conditions.

The Globespan/Eclear story and the demise of Highland Airways were added to the list of insolvencies in early 2010 but beyond the high profile business failures, other unprecedented, worldwide events have shaken an already wobbly marketplace.

The oil spill and, in particular, the unannounced arrival of the ash cloud dampened consumer resilience when it came to booking holidays in advance and crossing their fingers they would actually arrive at their chosen destination, and more importantly, get home again.

The travel industry has always been vulnerable to economic conditions as well as ad hoc, global events. It is one of the few business worlds in which customers pay so far in advance for services they have not yet enjoyed. However, this apparent luxury for travel businesses comes at a price.

Firstly, it requires a complicated web of consumer protection in case anything goes wrong between the purchase of a holiday and the receipt of that service.

Secondly, in order to stay solvent and continue to deliver holidays, travel businesses must ensure that they either keep customer money separate or keep making sales. It can be a vicious cash circle.

Recent consumer spending behaviours have caused the cash flow cycle to slow and even grind to a halt for some companies. The downturn and reduction in discretionary spend caused some consumers to cut back on long haul trips and short breaks.

Additionally, for the last three summers, a third of consumers polled have claimed they don’t intend on taking a holiday. Skiing and winter breaks dropped off while the staycation, camping, and domestic holidays became popular.

Those taking annual holidays are searching for better value for money and the consumer is becoming more adept at seeking out the best deal online. This bargain hunting approach and an uncertainty in the job market has driven a rise in last minute bookings. All of these behaviours reduce the period during which travel business hold customers’ cash and increase the vulnerability of the travel company business model."