Carriers have lost their ‘cloaks of invincibility’, says Steve Endacott

The UK travel industry needs a healthy airline sector to operate, so I was pleased to see that easyJet, British Airways and, hopefully soon, Virgin Atlantic have secured extra funding and look relatively safe so long as the flying lockdown does not stretch further than six months.

David Speakman, founder of Travel Counsellors, has been highly critical of the airlines and widely quoted describing them as “operating a Ponzi scheme” where they demand full payment from customers on booking and then use customer cash as they see fit.

Recent research by Bank of America seems to support this view. The bank looked at the amount of money each airline banked from un-flown flights (much of which will need to be refunded) as a percentage of how much cash it had in the bank.

As you can see from the accompanying chart, a few airlines like Ryanair had enough cash to afford refunds – irrespective of how easy they have made getting these – but many did not.

I appreciate airlines need cash up front to buy or lease capital-intensive assets like aircraft and customers benefit from this in the form of efficient new aircraft and lower prices.

Most airlines have been able to raise substantial funds to prevent collapse, showing robustness in their models – although David Speakman may rightly argue that these loans have been secured on the basis of airlines being able to access billions in unprotected consumer cash as soon as they start flying again.

So should airlines be forced to follow online travel agents and retailers in adopting trust fund models?

In that case, a customer’s cash would only be released to airlines once the customer has flown.

I’m sure airlines would argue these measures would be “draconian” given their capital intensive nature and the current financial pressure they are under.

But if agents and hoteliers aren’t allowed to use customer cash as interest-free loans why are airlines? Why should airlines be allowed use customer money before they provide the service contracted?

Ironically, in the short term the airlines’ credit card clearers are enforcing ‘quasi’ trust funds by holding on to billions of airlines’ cash as protection against the high level of credit-card recharges they are expecting on cancelled flights. So the hit on cash flow may not be as large as people think.

Ultimately, I’m in no doubt the right thing would be to force airlines to protect customers cash 100% with trust funds, but I accept this may take a number of years to deliver.

In the short term, the priority needs to be getting UK airlines flying again so they are able to deliver deferred flights or refund customers. I would not want anything that risks this.

However, in the post-corona environment regulators must accept airlines are riskier and at least level the bonding playing field.

Many airlines will have debt mountains to pay down and if they don’t operate trust fund protection they will represent a much bigger risk than trust fund operating OTAs like On the Beach and travel companies and networks such as Travel Counsellors and Trailfinders.

It is ridiculous for airlines to remain unbonded and Atol fee-free while lower-risk businesses are required to fund the replenishment of the Atol fund, which is needed as the ultimate guarantor of consumers’ money.

It is also beyond ridiculous that when the next airline fails the government will repatriate all UK citizens whether they have paid fees for repatriation or not.

It is time the CAA finally implemented its stated desire for an ‘all seats levy”.

This could be collected across all flights leaving the UK whether a customer has DIY booked a holiday via Google, using low-cost carrier sites and un-bonded bed banks like Booking.com, or has brought the same package via an OTA, homeworker or high street travel agent.

The current Atol fund is virtually empty after the Thomas Cook collapse and will be further hit via travel collapses in the next six months.

It is likely the current £2.50 per passenger fee will have to double to £5.00, but at least it will replenish much quicker if airlines also have to pay.

In the longer term, the CAA should enforce trust funds across the board or charge a hefty premium to the standard Atol fee for any company refusing to implement this basic level of protection for customer funds.

I wish all UK airlines a successful rebound, but if coronavirus has done anything it has removed their false ‘cloak of invincibility. They need to be brought into the consumer protection fold.

The Government has done an excellent job of putting the country’s business community into Hibernation, via its Furlough scheme, whereby companies using Government funding, have been able to effectively close their businesses on a temporary basis, whilst paying staff 80% of their salaries up to a maximum of £2,500 per month.

The Government has also enabled high street Banks to issue government-backed loans to companies who can show a profitable track record over the 18 months before the Corona Virus outbreak and has even helped the Self-employed.

The glaring gap is assistance to Start-up businesses. 

Steve Endacott, Co-Founder of Rebound Consulting commented, “ I have seen hundreds of start-up business and a common denominator, is that the business plan is often to lose money in the first 2 years whilst they reach critical mass and then make profits from year 3 onwards, with a hockey stick rise in profits thereafter.

My own Holiday Taxis Group followed this path and ended up carrying 7million passengers and being sold successfully, but if it had been started in the last 2 years, I believe the Corona Virus would have bankrupted it. 

Start-up’s like most businesses will be using Furlough grants to stagger on for the moment, but once these grants stop many will not have the capital required to relaunch and will quickly fail unless they can raise further funding.

Many private investors will be looking at the predictions of a recession, as bad as the Great Recession of the 1930s and will be hesitant to invest further.  Unless the Government reduces their risk by creating a loan fund to match their investments

“Governments by their nature,  are not well-positioned to assess the quality of start up’s management team or business plan, likewise banks tend to focus their loan approvals on historic numbers rather than the typical optimism of most start-up business plans, but “Angel” investors who are risking their money in the form of equity investments are”, said Rebounds Will Waggott.

Rebound Consulting is calling on the Government to match investors money with government loans.

Seamus Conlon said “Start-ups will still need to convince private individuals to take the largest risk, with “All or nothing” equity investments, but the Government start-up fund would match this investment, with a loan repayable after 3 years trading, paid off over a further 5 years. This type of long term loan would allow the business to grow in the crucial early years creating wealth and jobs for the country.”

“The government COBIL loans scheme is barely working for existing SMEs, it ignores startups completely”.  

“As we come out of Corona Lockdown, many existing businesses are going to reduce in size and the country will see large scale redundancies and a major surge in unemployment. As usual, the youth of the country may suffer the most, as they find themselves competing with the market place full of experienced and newly redundant workers”, said Will Waggott

Steve Endacott commented “Few Entrepreneurs are created at birth, but start their own business because they have a great idea and often have just lost their jobs. Many people will be using the current lockdown period, to flesh out ideas that they have been tinkering with for a while, in preparation for being made redundant.”

Rebound Consulting believes that the Government needs to help harvest these ideas and create conditions for a wave of new start up’s and support the existing start-ups

Rebound Seamus Conlon commented “Travel is one of the sectors that are likely to suffer the most from the Corona Lockdown and the following recession. However, we know we have a bedrock of creative people, who are customer-focused and used to working in relatively risky business. I think we could easily see the next big thing in travel emerging in the next 18 months with the right support and funding”.

Customer refunds and card chargebacks dominate queries to industry advice portal Rebound Consulting, according to founders Steve Endacott, Seamus Conlon and Will Waggott.

The three industry executives launched the Rebound consultancy to offer free travel business advice at the end of March.

They highlight refunds as the issue most troubling tour operators and retailers seeking advice, with operators struggling to recover deposits paid to hotels or event organisers and forced to defer bookings or issue credit notes.

Even retailers operating trust funds face difficulties, according to Endacott, noting: “A retailer may have cleared £1,200 for a holiday into their trust fund, but paid out £500 for a low-cost flight, with the airline now offering a date change or credit note.

“If the customer wants a refund and recharges their credit card, the retailer not only loses their commission, but also £500 of flight cost they don’t have.”

Endacott said: “Large OTAs like On the Beach may be able to recover their payments from the airlines via recharges on the virtual credit cards they use to book, but many retailers dynamically packaging don’t have this protection and are fully exposed.”

Conlon said: “In principle, customers should always be offered a full refund as an option if a service or product can’t be supplied.

“[But] none of the current rules envisaged a complete cessation of travel or airlines not refunding travel agents or tour operators. We all need to be practical about the timescales of refunds.”

However, Conlon added: “My preference is that companies secure overdrafts and loans to fund expenses rather than rely on customer monies which should have been refunded.

“That way you know you have cash available and don’t have to worry about disgruntled customers destroying the reputation you have built with Facebook posts.”

The Rebound Consulting trio also note that although companies are furloughing staff, many are hesitating to furlough directors or senior staff.

Waggott said: “Furloughing staff closest to you is the hardest decision to make, but often you need admin staff to rebook customers on a rolling basis and not expensive management not used to doing the day-to-day jobs.”

Endacott added: “Most business leaders have got the message about cutting costs to the bone.

“But being the head of a business is a lonely position and I’m been told several times it has helped people to get some reassurance from a third party that the decisions they are making are the right ones.”

He suggests many directors forget to apply the logic they adopt in business to their home life.

Endacott said: “The next nine months are going to be the hardest of our working lives, with most people on furlough or taking large pay cuts.

“However, many people I have spoken to seem to have forgotten about themselves or feel it to be a failure to defer mortgages etc. It’s not, it’s just sensible to take the pressure off at home while you’re going through hell at work.

He said: “I recommend seeking rent or mortgage holidays and suspending as many large outgoings as you can until you’re back to full earnings. You have the rest of your working life to pay these off.”

Endacott was co-founder of Holiday Taxis and a former chief operating officer of On Holiday Group. Waggott was both head of tour operating at Thomas Cook and chief financial officer at Tui. Conlon is a former managing director of Airtours Holidays and TV Travel Shop and non-executive director of Cruise.co.uk.

I have to confess to having been a “Remainer” in the great Brexit debate, as I felt the economic damage of leaving the European single market was large.

However, I do support the new “points-based” immigration system and don’t trust the Euro politicians to be in charge of laws governing the UK. To be fair, I don’t also trust UK politicians but at least we can vote to remove them.

But why are these comments relevant during the coronavirus crisis?

Because, I think other European countries will soon be facing populist pressure to leave the EU. The coronavirus crisis and self-isolating, has made us focused on “family first” and country second.

In reality, Europe has quickly fragmented into individual states, with all boarders shutting and countries focusing their medical resources internally, with few thoughts about acting as a single united European Union, moving resources as required to coronavirus hot spots. Of course there have been some examples of inter-country assistance, but these appear to have been extremely limited.

Economist are telling us that for every month a county is in lockdown, its GDP will fall by 2% and therefore the entire world is predicted to exit the coronavirus lockdown into a recession as bad the 1930s Great Depression.

As a newly ’independent’ country, with our own currency, Britain can use “fiscal easing” to borrow heavily and plough cash into funding measures to counter the coronavirus downturn, such as business rate holidays, further salary subsidisation and investment in infrastructure projects, to name a few.

If needed we can also devalue our currency to make exports cheaper and imports more expensive, whilst introducing whatever import tariffs we believe necessary to protect UK employment. 

People may hate Trump and believe his tariff-led negotiations will cause trade wars, but you can’t deny the boost in US economy since his election – even if it has been at a severe cost in terms of world harmony.

Economically, there are major benefits to European states staying together, including a large tariff free single market and a central bank, able to borrow money at much lower rates, due to the strength of the whole and the balance sheets of the stronger counties like Germany and France, balancing those of weaker economies like Italy, Spain and Greece.

As we have seen with Greece previously, poorer EU counties tied to one currency and a central European bank, have far less leavers to pull to get them out of recession and reduce unemployment levels. Quite often the richer countries, who are there to bail them out, impose stringent austerity policies that are deeply unpopular, in order to ensure their loans are repaid 

We have already seen in the US and other countries, how successful populist politicians can be. Promise the world today and ignore the consequences tomorrow, often gets people elected. So don’t be surprised as we emerge from the coronavirus crisis and head into recession, if Greece, Italy and even Spain’s choose to put the short term above the longer and decide to leave the EU, in order to take back control of their own currencies, laws and economy.

From a travel industry point, the upsides of this are probably greater than the downsides. New currencies often devalue, making the destination better value for holidaymakers. These newly independent counties will in turn want to continue to attract UK tourist and should have aggressive tourist boards providing co-funding for advertising. I also can’t imagine visa or fifth freedom flying rights being an issue with major holiday destination like these.

In hindsight, perhaps the UK exiting the EU ahead of the coronavirus fallout will turn out not to have been such a bad idea after all.

In the first of a series of blog posts, the travel veterans behind

Reboundconsulting.co.uk share practical steps SME travel businesses should take to navigate through the crisis

The government’s key focus is locking down the country. To facilitate this they have generously introduced the Job Retention Scheme, allowing non-essential staff to be furloughed and paid 80% of their salaries. However, don’t expect such a generous scheme to be in place for long – businesses should be planning on staff either re-joining the payroll or being laid off before we exit the full impact of the coronavirus.

The government’s next focus will be avoiding large-scale job losses and large travel firms such as airlines which employ a lot of staff in the UK and have strategic benefits, may receive further emergency support to stave of collapse. But even this may come at the cost of giving the government substantial equity stakes.

SME businesses can apply for the government’s loan scheme, but again these loans are by no means free and although every qualifying business should take them to improve liquidity, they should be used with extreme caution, as they are not free and will have to be repaid.

Cut all cost possible to survive today

SME travel companies can only survive this crisis by cutting overheads as near to nil as possible. If you have no income, you cannot have any overheads.

Although it is emotionally difficult, staff have to be furloughed, and that means everyone who is not absolutely necessary, needs to be sent home. Those staff who have stayed on will not expect to be paid more than 80% of their salaries, so don’t pay it. The harsh reality for many travel businesses, is that if they don’t take advantage of the government furlough scheme they will run out cash quickly and go bust.

All other overheads need to be renegotiated and cut. Here are some key ones to start with:

• Stop paying business rates for a year and defer VAT payments till June

• Renegotiate rents with landlords. Ask for a payment break or deferral

• Computer maintenance and all other office related expenditure needs to be cancelled where possible

Effectively, your business needs to be mothballed as soon as possible.

Cash is king

Cutting overheads to as close as nil as possible will clearly help cash. But every of route of cash retention needs to be considered:

• All suppliers should be contacted for cash refunds and/or cash support for the business

• Customers need to be given credit notes instead of cash refunds where ever possible

• Secure any government-backed loan possible, but don’t spend it unless you absolutely have to

Plan for the rebound

The rebound will come, but your business cannot be the same as before the crisis. You need to be leaner, keener and work smarter.

You know who the core members of staff are, the ones willing to go the extra mile and on the journey with you. It’s time to let those who aren’t go and replace them with better staff. Homeworking will be the norm, so embrace it and use it to recruit better staff from a wider catchment area.

Spend the quiet time you have now to work out solutions for all those inefficiencies you will have lived with for years. Sometimes this involves technology, but often it’s just about reviewing processes and cutting out the inefficient, “that’s how we have always done it”, bits people do.

Marketing costs money, so focus now on re-engaging with previous bookers to make sure you have their latest contact details and remind them you are there for their holiday needs when the rebound does come.

Using your time wisely costs nothing and can save a lot of money when the rebound comes, so start thinking and planning now.