A concerned Travel Daily reader, who wishes to remain anonymous, has posed some tough questions which we have agreed to publish in the form of a discussion paper. We welcome your input, so let us know what you think at [email protected].
Questions to consider in relation to the present and future – a discussion paper
SINCE early March the Australian travel industry has been operating in an environment of zero revenue. Truth be told, due to the refunding of tickets etc and the recall of GDS segment rebates, the industry as a whole has been working in an environment of negative revenue.
The reality is, in this writer’s opinion, that the Australian travel industry is no longer economically viable. JobKeeper is unfortunately a measure that has concealed the collapse of the overall industry, the businesses engaged in this sector have no ability to generate any meaningful revenue/income while the Australian international borders are closed. Numerous entities are trying to remain engaged and relevant via a variety of programs with their long-term clients, but this appears to be more an act of desperation or insanity than dealing with the orderly shutdown of their businesses.
In the last week of June Alan Joyce, CEO of Qantas sent the strongest message to the industry that no international aviation of any substance is likely for at least a year. He may even be sugar-coating the situation to make it more palatable for his employees, shareholders and associated travel industry. Minister of Trade and Tourism Simon Birmingham has also been making statements that the international borders would not reopen until 2021 at the earliest.
This means at a minimum we have more time ahead when we are shut down than has already passed since we entered hibernation, yet the general economy is already opening up.
Would any fair minded Australian believe it is appropriate to open the Australian borders prior to a vaccine or treatment being available? To date Australia has gotten off lightly in relation to infections and the death rate is relatively low due to the early actions taken by our Federal Government.
In a previous editorial from the Editor of Travel Daily, the issue of JobKeeper was discussed as being only one of several elements required to sustain a travel industry in Australia. The recent Travel Daily business survey also demonstrated that few travel agencies could survive a 12-month period with little to no revenue. To this point most agencies have had negative to no revenue for four months.
The Australian travel industry is made up of businesses that in general have no hard assets. Even the large players only have their brands that represent an asset that may, long term, have some value. It generally means travel companies in Australian do not have substantial/strong balance sheets. Most participants only have access to personal resources to obtain additional injections of capital into their businesses.
The situation is exacerbated by financial commitments and employee entitlements. Any company that has more than 14 employees has redundancy issues that will suck precious capital from their balance sheets. Any company that has a lease, sometime in the next few months must start paying rent and commence paying back the deferred rent that has been capitalized. The industry overall generates income via “clipping the ticket” so to speak. Irrespective of whether you are a home-based agent, a franchised group, a consolidator, a GDS or a back-office accounting systems provider, ultimately all revenue is derived from “clipping the ticket”. These are just the companies that are front of mind.
Every part of our economic ecosystem generates revenue based on a flow of consumers. No consumers, no revenue, no business, no ecosystem! Consumers are the Australian travel industry’s lifeblood.
Is there hope? Honestly not much.
Is there a nice way to say this that won’t upset many?
What hope is there?
Those that are able to reduce expenses to almost zero have a chance of re-emerging in the post Covid-19 world.
- How long must you hang on?
- What sort of balance sheet do you have and how much of your funds are you prepared to consume while you wait?
- What will be left of the industry distribution ecosystem that will be able to assist you in the post COVID-19 world?
I am of the opinion that in the initial reactivation stage activity will be severely subdued. Any business will require capital to cover reactivation costs until activity increases to a point that a business becomes economic.
Big question… all businesses have clients that we have obligation to see through existing transactions completed.
- How many uncompleted refunds are still outstanding, which despite your best efforts you cannot complete?
- How many of your clients are holding credits on transactions that you undertook on their behalf?
- Does anyone have outstanding live bookings for travel commencing sometime in the future, that your clients do not wish to cancel at this time? Who would have thought that future business would be a liability?
- If you close your doors, how will these bookings, refunds and credits be handled to completion for your clients? Who can I pass these outstanding obligations to, that can be trusted and at what cost
Introducing… the Agent of Last Resort
HAS Armageddon occurred? Based on the recent Travel Daily survey, a possible conclusion is that Armageddon has already occurred (it’s not what I thought Armageddon would look and feel like) and JobKeeper is just kicking the can down the road.
Even if JobKeeper is extended, how many are willing to risk precious capital on extended hibernation without other significant financial assistance that will not create future obligations?
How long is the travel industry’s piece of string?
How many destinations, or better selling skills webinars can you bear?
Note: The Administrators of Virgin Australia have stated that $100 million in outstanding Australian travel industry created credits exist. How large are the outstanding refunds, credits and live bookings across the entire industry?
AFTA’s role in creating the Agent of Last Resort
I AM calling on AFTA (as no commercial organisation can be trusted or relied upon to be here in the post COVID-19 world) to request funding from the Federal Government to create and fund the Agent of Last Resort and to:
- Establish offices in all states and territories.
- Provide funding to operate the Agent of Last Resort for a period of 3 – 4 years.
- Obtain additional funding to provide grants and training to employees to assist with reestablishing the retail and corporate Australian Travel Industry.
- To have grants available to businesses that have made it to the other side to assist with providing wage subsidies for expansion and traineeships while trading is subdued.
The Agent of Last Resort would maintain a core skill base of individuals who will be the entrepreneurs and employees of the new travel agencies post COVID-19. Think of it like the seed bank that exists post any apocalypse to provide food for the world. I know this sounds dramatic, yet what is the alternative?
The Agent of Last Resort will at no cost take on the management of any outstanding refunds, credits and live bookings. This will allow agents to effectively shut up shop without exposure to potential litigation from former clients in relation to outstanding issues. It would also not become a distributor of sales in the recovery, but be purely a warehouse to deal with resolution of legacy issues – because those agencies that make it to a post-COVID world must not be competing for new transactions against a government-resourced competitor.
This outline is intended to form the basis of a dialogue that needs to commence within the Australian travel industry immediately. If we accept this is a reality, the next step is not just an orderly shutdown of businesses. The discussion must include assistance for all those who have worked and owned businesses in the industry, which can no longer feasibly operate in the current economic climate due to ongoing border closures.
The Australian travel industry has been destroyed not by misadventure or excessive risk taking, but by a pandemic!
AFTA must lobby the Government to also provide a safeguard for the financial and mental health of industry participants during a transition period. Very few if any other industries, to a person, have been wiped out as the Australian travel industry has by this pandemic.
Over to you AFTA.
P.S. Please stop the meaningless and endless destination and selling skill webinars ASAP and start talking to the Australian travel industry like we are grown-ups. We are big enough to handle the truth!