The coronavirus pandemic adding on to the global economic woes has impeded travel, severely impacting consumer spending for 2020, and posing critical risks to travel agencies given that financial performance is tied to the direct spending of consumers, according to GlobalData.
Last year saw US$1.9 trillion spent on outbound global travel, with travel intermediation accounting for US$166 billion, which is equivalent to 8.7 per cent of global expenditure, according to GlobalData’s latest figures.
More was spent on transportation (US$472 billion), retail (US$461 billion) and accommodation (US$325 billion), but lack of expenditure across these sectors will have a roundhouse effect on travel intermediaries.
Johanna Bonhill-Smith, travel and tourism analyst at GlobalData, said: “Companies with a steady financial performance, operating through a multi-branded strategy and high cash reserves, are more likely to survive in this war-like period. But ultimately, lack of consumer spending is the greatest threat faced by all travel intermediaries and travel sectors.
“Travel intermediaries act as the direct link in the chain of distribution between a company and the consumer base working in tangent with airlines, hoteliers, cruise operators and insurance providers. Therefore, the financial performance and downfall of any travel-related sector will have a dramatic effect on intermediaries.”
As numerous operators now seek additional credit to stay afloat, companies with steadier financial performance are more likely to receive credit, said GlobalData in a statement.
Travel players that also operate through a multi-branded strategy are likely to encounter quicker financial recovery due to servicing of a wider market base. Additionally, those with a higher operating cash reserve are better placed to outlast the effects of an exogenous event such as Covid-19.
Bonhill-Smith concluded: “Despite a significant drop in share prices amid the lack of demand, OTAs such as Expedia, Booking Holdings and Lastminute.com are likely to be in a better position (to survive the Covid-19 crisis). Traditional in-store travel agencies such as TUI and Hays Travel, however, will face greater challenges in a post-Covid-19 world as more customers opt for an online booking platform over face-to-face interaction.
“As travel restrictions continue to impose on the freedom of movement, the slump on consumer spending is not likely to lift anytime soon. It does remain clear, however, that the travel marketplace will be a lot less crowded as all companies struggle, with many on the verge of collapse.”