Unanswered questions from the Global Travel Taskforce report

On 9 April, the Global Travel Taskforce released its report setting out plans to get international travel started again safely. Here’s our take on the report and the questions we hope will be answered in the coming weeks.

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How does a trust account impact your cash?

Trust accounts are increasingly seen as the preferred form of security for our industry. They have been used throughout the travel supply chain to cover a multitude of potential risks since the failure of Thomas Cook and a devastating global pandemic sent insurers and their capacity running for the hills.

There are many things to consider when deciding whether a trust account is right for you. Above all, you must understand the impact on your cash flow. Client funds will be held in a segregated account and your ability to move the money will be restricted. A detailed cash flow model is essential, and frankly, getting it wrong could be disastrous.

So, here’s what you need to consider.

Timing your cash inflow

Depending on the purpose of your trust account, it may hold all customer funds or just a subset (e.g. only ATOL bookings).  Some operators collect all customer funds into one central account and then split out protected funds into the trust. Or you can arrange for your card processor to send funds directly into the trust. You may also need to separate different foreign currencies into different trust accounts.

Whichever approach you choose, the timing difference between your customer handing over money and you receiving it could be critical.

Any delay in receiving cash may mean you would have to front up the money in advance from your own cash flow. For example, if you’re on ‘deferred settlement’ terms with your card processor (i.e. you wait more than 3 days to collect), or if you sell via a travel agent, and they hold onto funds for longer than two weeks before passing it over to you.

The gross amount paid by your customer should be protected and go into the trust – no offsetting card processor charges and no leaving out the commission paid to the travel agent. For some, this might mean changing previous payment and commission arrangements and your IT systems or card processing set-up will need to be able to identify and separate out which monies require protection.

When funds are released

The default position under Package Travel Regulations is that funds can only be released once the booking has been performed. In other words: no money until the customer comes home.

Now, there are some caveats. Money can sometimes be released earlier, but only in very specific circumstances. For example, an ATOL trust might allow funds to be released for certain authorised booking components, as long as they’re covered by Supplier Failure Insurance or Chargeback via a corporate credit card. Similarly, a non-flight package trust may permit early release where the money is protected by a gap insurance policy.

It’s also worth highlighting that robbing Peter to pay Paul is strictly forbidden. Any customer refund can only be paid out from the amount held in trust.  So if supplier payments have already been released, you’ll need to get them refunded before the customer can be repaid.

Funds are usually claimed out of the trust using a Payment Request mechanism. You must provide evidence that the holiday has been delivered, cancelled or refunded, or in some cases that a supplier has been paid from your own cash flow first before funds can be released from the trust.

Before trust, comes knowledge

To understand whether a trust account could work for your business, you need a robust financial model that illustrates the impact on your cash flow.

If you need any help, feel free to get in touch.

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TTC join finance panel at Future of Travel event

We were delighted to be part of Travel Weekly’s Future of Travel Spring Forum this week. TTC Director Adam Pennyfather spoke on a panel alongside WHA and Travlaw. The session covered several timely subjects, including:

• A look back over the past 12 months and the challenges to restarting
• The financial pressures facing businesses
• How stakeholders, including merchant acquirers, have reacted during the pandemic
• The importance of a good summer season for the industry

Below is a recording of all the day’s sessions; you can watch the panel 35 minutes into the video. We hope you enjoy it!

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The COVID-19 crisis is rapidly evolving and the Government's response and the details of support on offer are continuously changing. We'll be updating our posts regularly to ensure our analysis and advice remains as accurate and useful as possible. To receive the very latest information as we release it follow us on LinkedIn. If you have any questions in the meantime, please get in touch. 

Celebrating International Women’s Day 2021

To celebrate International Women’s Day, we asked some of the brilliant women working at TTC to talk about their careers, what they have achieved and any advice they would give women in similar roles.

We had so many great responses, take a look at more replies here. 

If you would like to know more about International Women’s Day, please visit: www.internationalwomensday.com.

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Travel insights from ABTA’s finance conference

We were delighted to speak at ABTA’s Travel Finance Conference earlier this week. TTC Director Martin took to the virtual stage, to set the scene for the day and explore the key indicators for businesses as travel begins to recover. He discussed the recent government road map announcement and highlighted that although there may be some hurdles, it’s a positive step in the right direction.

He also talked about the impact of the vaccine rollout on the recovery of destinations and shared data on the January trading period.

Below is Martin’s presentation from the conference. If you would like to watch the full event, it will be available on ABTA’s website soon.

If you would like a copy of the slides, please get in touch.

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The COVID-19 crisis is rapidly evolving and the Government's response and the details of support on offer are continuously changing. We'll be updating our posts regularly to ensure our analysis and advice remains as accurate and useful as possible. To receive the very latest information as we release it follow us on LinkedIn.  If you have any questions in the meantime, please get in touch. 

Managing your merchant acquirer

If you accept card payments you will need to use a merchant acquirer. But what role do they play and why is your relationship with them not quite so straightforward as it once was?

No business transactions are ever as simple as you think they should be. That’s certainly the case when it comes to accepting card payments. The process of charging a card is often over in a matter of seconds, but within that time it goes through several stages to reach completion. And one of them involves a merchant acquirer.

They are a vital link in processing debit or credit card payments, whether it’s online, through an in-store card machine or over the phone. Not only do they process the payment, but they also (most importantly) pass the funds to you within the terms you have agreed.

How do they make their money?

A merchant acquirer will charge you a fee, normally between 0.5% and 3%. The more transactions you carry out, the lower the charge. The fee often includes a variable interchange rate charged by the card issuer, someone like Visa or Mastercard.  

There’s also another important element to your merchant acquirer’s fee structure. This takes into account their level of risk to chargebacks, which is regularly reviewed by risk committees who will require collateral from you as security.

The Chargeback scheme allows consumers to claim back money if a merchant hasn’t delivered on its contractual obligations to provide the goods or services purchased. If you go out of business, your merchant acquirer could be liable.

Why the travel industry is a special case

For merchant acquirers, the travel industry is a high-risk environment. There are several factors that contribute to this.

The long timeframe between payment and delivery of the service increases exposure to chargebacks if anything goes wrong.
Despite consumer protection through ATOL and other financial schemes in the event of a failure, credit card customers would be referred to the card provider by ATOL and ABTA to be repaid through the chargeback scheme.
The current climate has increased the risk of travel businesses failing.

This hasn’t slipped the attention of the merchant acquirers who work with the travel industry. The biggest change you’ll notice is that they’re demanding a greater level of security. Some are even terminating their contracts with high-risk clients where additional collateral isn’t possible.

Some of our clients are being asked to provide collateral in one or more of the following ways:

• A deferred settlement, which might mean you have to wait longer to get paid. Instead of T+3 (3 days after the transaction), they might ask for T+7
• Rolling Reserves, where they hold back a percentage of the money, to limit their exposure (e.g. 10% for 3-6 months)
• Fixed Cash reserves in the form of an upfront cash bond (potentially substantial), which can be used for unexpected costs such as chargebacks
• A Trust Account, where the customer’s money is securely held until the holiday has taken place.

What this means for you

Finding this extra collateral can have significant cash flow implications for any travel business. It may also result in extra costs, such as those involved in setting up Trust Accounts. And all this at a time when every penny counts.

Travel Trade Consultancy supports businesses in their discussions with merchant acquirers to ensure the best possible outcome by:

Introducing and assisting with negotiations
Assessing the impact of the collateral and security demands from a cash flow perspective
Providing support to your wider finance function

If you would like further information on any of the above, please get in touch.

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TUI’s Q1 financial results: TTC’s Martin speaks to BBC News

“Covid has been like a wrecking ball to the travel industry.” TTC’s Martin Alcock joined BBC News this morning to discuss TUI’s Q1 financial results and to highlight the plight of the UK travel sector.

In the year since January 2020, TUI has gone from the most successful trading month in its history to needing more than €4bn of German government and shareholder bailouts to survive. 

TUIs actual Q1 trading results released a few hours after this interview, showed Winter bookings almost 90% down on last year, in line with what we’re seeing across the market.

A large group like TUI has access to multiple capital and funding options to help them get through these tough times. Many smaller travel businesses don’t have that luxury.

TUI are still hopeful of delivering 80% of their normal Summer ’21 programme. Even if that still feels over-optimistic at this point, the good news is just around the corner. Until then we need a tailored package of UK government support and a clear roadmap to get us travelling again.

Following this interview, TUI announced a €699m loss in Q1 as lockdowns and travel restrictions severely limited demand for fights in the last three months of 2020. You can view the results here. 

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The COVID-19 crisis is rapidly evolving and the Government's response and the details of support on offer are continuously changing. We'll be updating our posts regularly to ensure our analysis and advice remains as accurate and useful as possible. To receive the very latest information as we release it follow us on LinkedIn.  If you have any questions in the meantime, please get in touch. 

Financing a travel business & 2021 trends: TTC sponsor ABTA event

We are delighted to sponsor ABTA’s Travel Finance Conference for the fifth year running. Our directors, Martin Alcock and Adam Pennyfather will be taking to the virtual stage to explore the key indicators for companies as the sector begins to recover and financing a travel business in 2021. 

Ahead of the event, Martin reflects on the last Travel Finance Conference and looks at the challenges facing the industry this year. 

I have fond memories of last year’s ABTA Travel Finance Conference. This is mainly because it was my last time in a room with more than six people. 

The conference was held on March 11th. COVID had landed in the UK and panic was rising. Italy had just gone into a full-scale lockdown and speculation was mounting that we’d be next. The whole event nearly didn’t happen, after several sponsors, speakers and delegates pulled out at the last minute. Even the host cancelled a few days beforehand and the alternative venue turned out to be the former offices of Thomas Cook. A fact which only added to the sense of foreboding.  

Despite the ominous signs, I often recall that day’s conversations with a smile. They seem so innocent and naive when viewed with the battle-hardened hindsight of the past twelve months. “This Easter disruption isn’t ideal but it’ll all be over by Summer” we’d confidently assert, over one of those awkward stand-up lunches where you have to balance your egg and cress sandwich on top of your glass of orange juice. 

It’s coming up to a year since that landmark event, but the outlook is more uncertain than ever. 

We’re housebound and homeschooling. The air corridors are sealed and UK arrivals must quarantine, possibly for 10 days in an airport hotel. Given that bleak backdrop, it’s hardly surprising there are few signs of life in the pivotal January booking period. Most operators we speak to are below 20% of their usual January levels. 

Trading out of this mess will be a challenge. Battered balance sheets are struggling to cope with a year of cash outflows and asset write-downs. Unsustainable liabilities have built up as a result of Refund Credit Notes, deferred tax payments, holiday pay accruals and other assorted nasties. 

Hibernating was a relatively simple equation, at least on paper. Costs were cut, power turned off, and doors locked. Starting up again is far more complicated. Timing is critical. Bringing back teams, opening up sites, turning on marketing all burn cash without any guarantees of a return.  

Regulators, merchant acquirers, insurers and other stakeholders are increasingly jittery that their exposures will get worse before they get better. Their security demands are piling further pressure. For some companies, it will be limits imposed by such stakeholders that inhibit their recovery.

Yet, the long term fundamentals are firmly in our favour. Demand for travel is without question. A spike in UK savings ratios suggests there is money burning holes in pockets. And my god do we all need to get out of the house.  

This year’s ABTA Travel Finance Conference is a chance to come together and figure out how we move forward as an industry. We’ll be sharing our view of the latest trends, and examining the impact that recent developments are having on the sector.  We might not have all the answers by then, and the egg and cress will be strictly B.Y.O this year. Nevertheless, I hope you can join us.

Written by Martin Alcock, TTC Director.

You can view the full Travel Finance Conference agenda and register here.

As sponsors of the event, we are delighted to be able to offer you a 20% discount to attend. Please get in touch and we’ll share the code with you!

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IATA has made some changes

In all the mayhem of the past few months, it may have escaped your notice that IATA has introduced a number of changes to its approach for assessing UK ticketing agents.

These changes could have material and wide-reaching consequences for your business, and you should review their impact carefully.

Here we have summarised our view of the most significant changes and identified some areas for you to consider. We hope you find it useful, but please remember, this is not meant to be an exhaustive list of all impacts. As always, there is no substitute for advice which is specifically tailored to your business!

We’ve covered:

-Changes to Local Financial Criteria
-New method of calculating Risk Holding Capacity
-New rules on the horizon for large agents

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If you have any questions, please get in touch.

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Travel in 2021: TTC Director Martin featured in TTG

Our director, Martin Alcock recently wrote an article for TTG Media reflecting on what’s been a very challenging year for the travel industry. He also shared some thoughts on how the Covid-19 vaccine may impact travel in 2021.

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You can view the article in the January 2021 edition of TTG here.

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How does the travel industry move forward?

The travel industry is currently facing two existential challenges – Covid-19 and Brexit. It’s hard to imagine how these events are going to pan out next year and how the travel industry’s recovery from the pandemic will look. This is something that our director, Martin Alcock, explored when he spoke to members of the Association of Independent Tour Operators earlier today.

Martin looked at the impact of the vaccine and highlighted that although it is very important, it doesn’t do that much for the practicalities of travelling in the short-term. He also discussed why we believe it’s vital that the industry continues to push for a coordinated testing approach. Martin also discussed some of the major questions facing travel companies going into 2021, including:

– How is the uncertainty going to affect the January peaks?

– What impact will fewer business travellers have on the unit economics of airfares, and therefore the price of leisure tickets?

– Although Covid has accelerated the rate of channel shift from offline to online across retail spending, will travel buck the trend?

Here’s the full presentation:

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The COVID-19 crisis is rapidly evolving and the Government's response and the details of support on offer are continuously changing. We'll be updating our posts regularly to ensure our analysis and advice remains as accurate and useful as possible. To receive the very latest information as we release it follow us on LinkedIn.  If you have any questions in the meantime, please get in touch. 

Introducing TTC Finance

Over the last year, we have expanded our TTC Finance team to provide more hands-on support to our clients and help them manage their way through the Covid-19 pandemic. We thought now might be a good time to introduce them and tell you more about how they can help! 

Having an effective finance function is integral to running a successful travel business.

Running a travel business has never been harder, and having an effective finance function is more critical than ever. However, building the right finance team can be difficult and time-consuming.  Throw in the unique complexities of the travel sector, and it’s little surprise that finding suitable candidates can be a challenge. 

During the pandemic, we’ve been supporting our clients with experienced, practical, senior financial support.

We’ve raised funding through government loan schemes, managed the furlough process, built flexible financial models to help understand cash positions and react to rapid changes in trading outlook, and dealt with demands for information from stakeholders.

Above all, we’ve been there, in the room*, supporting owners and directors, and helping them make better decisions.

How do we work?

Our experienced team of finance professionals can fill the skills gaps in your existing team. We provide tailored financial support on a fully flexible basis, that can be dialled up or down to suit your needs, from a day a month up to five days a week.

We can pick up specific projects, provide an experienced hand on the tiller, or even provide temporary support to cover illness or parental leave.

We provide board-level financial input, but we aren’t shy of getting our hands dirty either. We assist businesses at a Financial Director and a Financial Controller level. 

Between us, we have decades of experience working with important stakeholders like HMRC, the CAA, ABTA, IATA, merchant acquirers, banks, insurers, FX providers and private equity firms. We can support your discussions or manage these relationships on your behalf. 

*mainly on Zoom to be fair. 

Meet the senior finance team

Adam Pennyfather, Director

Adam heads up the financial consulting and outsourcing unit of TTC Finance. A team of dedicated individuals that help to provide pragmatic solutions to complex financial and regulatory problems faced by the travel industry. 

After spending 10 years in the travel industry, Adam understands what makes a great finance function. He also truly believes a great team will not only help you sleep at night but achieve your ambitions and above all, deliver value to the business and its shareholders.

Adam acts as a Financial Director for several clients. He and his team work with a wide range of travel businesses, including start-ups. They cover a broad range of services, in areas such as cash flow management, financial projections, assessing and mitigating financial risks, managing third party stakeholders, and providing management with financial insight. 

Ultimately, they get to talk about travel all day and who doesn’t love that!

Get in touch with Adam: [email protected]

Matt Ansell, Consultant

Matt is an experienced finance professional, with a boat-load of travel and tech industry experience. 

As Finance Director of the Hidden Travel Group, he completed several acquisitions whilst overseeing all financial, commercial and regulatory matters. At Stone Ventures, Matt was a member of the Pebble Travel Investors advisory board providing senior financial support to a number of successful travel investments, notably Ski Solutions.

Matt joined TTC in August 2020 and provides financial and strategic expertise to a number of our clients. 

Prior to his work in the travel sector, Matt spent six years in Ernst & Young’s corporate restructuring division where he qualified as a chartered accountant.  

Get in touch with Matt: [email protected]

Sarah Winship, Consultant

Sarah joined TTC from Virgin Holidays’ commercial strategy team in May 2020. She supports our clients and their finance teams with scenario forecasting, debt raising and strategic decision making. 

Her 13-year career with PricewaterhouseCoopers’ London, Sydney and New York offices, working on mergers and acquisitions, stock market listings and financial due diligence mean she is no stranger to high pressure and tight timescales. 

Sarah loves travelling and has visited the four corners of the globe to ski in Mongolia, watch rugby in Japan, and track rhinos in Botswana. Nevertheless, she still maintains close links with her native North-East as an Advisory Board member of Newcastle University Business School and a trustee of the Students Union.

Get in touch with Sarah: [email protected]

Jade Stutely, Operations Director

Jade has bags of hands-on finance experience having held senior finance positions in several businesses ranging from startups to public listed companies. She qualified as an ACA Chartered Accountant with PricewaterhouseCoopers and works with companies to optimise their business processes and tighten their controls.

Jade is also TTC’s resident travel trust account expert and she brings much-needed clarity to the many complexities of modelling, setting up and running a trust. 

Jade is an intrepid traveller and travel blogger. She travels whenever she can, but still has a fair bit of the globe to cover. These days she tends to spend time reminiscing but will be back to exploring as soon as the world opens up again. 

Get in touch with Jade: [email protected]

Brexit: focus areas for travel businesses

Now that the end of the Brexit transition period is less than a month away, it is more important than ever that travel companies understand how this might impact them. From 1 January 2021, there will be new rules in place, many of which will affect the travel industry. Below are 11 key areas that you should consider when getting your business ready for these changes.

We have also created a Brexit risk matrix to help you capture and document the key risks and considerations for your business. Download your free template here.

Recently, we discussed the above areas during a webinar hosted by our partner The Travel Vault. The recording is available here.

If you need any help understanding how these changes might impact you, please get in touch. 

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Guidance on Brexit is continually being updated as we progress through the transition period. We'll be updating our posts regularly to ensure our analysis and advice remains as accurate and useful as possible. To receive the very latest information as we release it follow us on LinkedIn. If you have any questions in the meantime, please get in touch. 

The growth of integrated travel companies

The challenges faced by airlines and tour operators during this pandemic are well publicised. 

Business activity has fallen off a cliff, and cash has flown out of the door as new bookings have dried up and old bookings have been refunded. 

But spare a thought for those that are both an airline and a tour operator. 

Whether you think of them as tour operators with their own airline (TUI, Jet2) or airlines dabbling in tour operating on the side (easyJet, BA, Virgin), integrated groups now represent five of the top 20 ATOL holders in the UK. You can see how the size of their ATOLs, which cover their flight inclusive package holidays has grown over the last eight years in our interactive chart here

When times are good, there are plenty of solid reasons why a vertically integrated, asset-heavy model is a no-brainer for a travel company. The ability to control the delivery of your product, manage your supply chain, and guarantee access to flying capacity are all invaluable when you’re selling holidays at scale.  

Of course, the trade-off is a massive reduction in flexibility. Operating an airline is incredibly capital intensive, especially when most of the aircraft are stuck on the ground. Easyjet and BA are still burning through £8million (easyJet) and £20million (BA) a day, despite flying less than 30% of their capacity and carrying out major cost-reduction programmes. 

On the face of it, asset-light companies should be able to weather the current storm better than the integrated groups. Take the third-largest ATOL holder, On the Beach, for example. Despite the pandemic, they are still trading at break-even thanks to their more variable cost base

On the other side of this crisis, though, integrated groups have a unique opportunity to reassert themselves. 

Right now, customers simply aren’t booking holidays. Interestingly, anecdotal evidence suggests that they fear the prospect of further quarantine more than catching COVID.

Travel corridors change weekly and destination access can be restricted within hours of a government announcement. Nervous customers are either avoiding commitment or deferring decisions until the last possible minute and booking much closer to departure. 

In order to stimulate demand in that kind of environment, tour operators and integrated groups have two moves: drop their price, or offer as much flexibility as possible, with options to change or cancel trips at minimal cost. 

Whilst larger tour operators are generally able to negotiate favourable terms with most of their suppliers to enable them to offer such flexibility, their airline suppliers have so far been unwilling to play ball.  

Integrated groups, on the other hand, have a unique advantage, and are offering innovative terms to their holiday customers that aren’t available to other tour operators. In recent weeks we’ve seen a few examples emerge: 

– TUI is offering customers the flexibility to change their holiday with no fee, up to 21 days before departure.  

– Easyjet Holidays launched a ‘Protection Promise’ offering fee-free changes or cancellations to holidays up to 28 days before departure.

– Virgin Atlantic Holidays announced a new ‘Escape Pass’. Customers choose their dates and hotel rating and will be guaranteed a holiday in the Caribbean where they won’t be subject to quarantine rules and restrictions. The customer will only find out two weeks before departure which destination they’re going to.

– BA Holidays are offering customers the ability to change destinations, dates or cancel altogether with three weeks notice. 

Owning their own airlines has given these integrated groups the ability to create flexible, unique, and highly defensible product offerings. 

All they need now is the recovery to take off. 

 

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