Conservative approach must be taken by travel operator, financial investment gets critical

Monday, May 18, 2020

Travel companies seeking additional aid from investors again and again will not only damage future balance sheets due to increased debt levels but also impact brand credibility.

According to GlobalData, a conservative approach is critical for travel companies that have secured financial investment, as the duration of COVID-19’s impact remains unclear. Travel companies seeking additional aid from investors again and again will not only damage future balance sheets due to increased debt levels but also impact brand credibility.

Johanna Bonhill-Smith, Travel & Tourism Analyst at GlobalData, commented that securing additional investment has been a necessary move, even for larger operators like  Expedia, Booking, TUI and Trip.com as a means to weather the current storm.

 In  short term those securing additional equity are without doubt in a better position to survive this exogenous event.

 Government packages do not typically involve support for large organizations and additional finances has been necessary and high debt levels may threaten balance sheets for the foreseeable future.

 In private equity financing Expedia had secured US$1.9 bn in a revolving credit agreement and last week the management sought an additional US $3.2 bn in private equity financing.

 Companies will be able to get the extra cushion needed to withstand the impacts of COVID-19 for a longer period.

Bonhill-Smith further said that the hare prices have also taken a significant drop which damages the credibility of a brand and potential appeal. Investors however remain faithful for now as the travel industry is known for its resilience.

A conservative approach remains vital as funds will deplete if not managed carefully. Companies now need to be pragmatic in planning and draconian with investment, as if actions are not well thought out, this could lead to their downfall – if not a weaker position in the long term – a scenario which remains highly undesirable.

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