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Graydon blog - "We’re all going on a summer holiday" …but will we ?

By CreditMan Thursday, February 9, 2017

Just recently, we saw the failure of the holiday company, All Leisure Group Ltd. A company that specialised in the cruise market and better known under the trading styles of, Swan Hellenic and Voyages of Discovery. Strange you may think, bearing in mind the popularity of cruising, indeed, it’s never been more popular, maybe in part down to an ageing population where cruising has always been very popular.

by Colin Sanders, Head of UK Operations Graydon UK Ltd

So the question is, why did it go bust ? Brexit ? Doubtful that played a major part in it’s failure and a quick analysis of the company shows that it had deep lying financial problems long before the referendum even took place. A simple analysis of the last filed accounts for 2015 showed that the company was effectively losing around £146 per passenger. Unsustainable in any industry. Yes, in all probability the referendum vote has played it’s part since the last filed accounts and the weakness of sterling against other major currencies in Europe particularly the Euro won’t have helped but in reality, a financially weak company and choice of destinations was most likely the cause of it’s downfall. “All Leisure” specialised in areas of the world which are becoming less and less popular because they are less safe than in previous years. Wrong place, wrong time. Quite simply, cruises in the middle east are not very popular for the obvious reasons. Financially weak? Yes, because the company between 2013 and 2015 had combined losses of more than £24 Million!

Incidentally, another holiday firm failure was, Lowcost Travel Group Ltd but their excuse that Brexit was to blame, the day after the referendum vote took place wasn’t a very credible excuse. Again, a company in a poor financial straits, simple as that. 'Will there be more failures in this sector ? Quite possibly as the world is becoming a more dangerous place than ever before.'

Monarch Airlines has been well publicised as being in financial difficulties and had to rely on a £165 Million bail-out from its VC (Venture Capital) parent to stop it failing at the back end of last year. Even this may not save the company in the long term as trading conditions remain very difficult and the competition is in many cases, in a far stronger position financially. Will the VC parent step in again to save the business ? Maybe, maybe not.

Some of the previously popular destinations for the UK ( and European ) holidaymaker are being crossed off the list, rightly or wrongly. Tunisia anyone ? After the terrorist attack of 2015, probably not. Turkey ? Fast becoming a no no and this is reflected by the price of holidays to that destination. Clearly, the public has voted with its feet because of terrorist atrocities. France has had its problems with terrorism and the winter destination of Sharm El Sheikh was another popular destination that suffered a terrorist atrocity. Even the beautiful Greek islands are subject to less popularity mainly due to these islands being a landing point in some cases for migrant refugees. We can all remember the very distressing TV pictures of desperate individuals fleeing a war torn area such as Syria and whilst the world has huge sympathy for these people, holidaymakers aren’t likely to want to witness this at first hand. So what are we left with ? Spain, Portugal, the Canary Islands and Italy ? Quite limited for the traditional summer holidaymaker.

The point I’m making here, is that the traditional areas serviced by the holiday firms is reducing and unlikely to change in the short term and thus, holiday firms are fighting to win business in fewer destinations. Aside from the “ Lets holiday at home this year “ contingent, there is also the problem of how much holiday money you can get for your £ and could again influence the holiday destination, and it’s not gone unnoticed that 2017 prices for holidays in the Mediterranean appear to be much higher than they were in 2016.

This all points to a very difficult year for holiday firms that specialise in what were traditional package holiday destinations in the Mediterranean and I doubt everyone is going to go long haul instead, particularly for those families where the price of such holidays is somewhat prohibitive.

Checking that holiday company has an up to date ATOL license is very important but that aside, it’s also crucial to do your due diligence on your tour company and let me remind you, “All Leisure” had an up to ATOL license. OK, thankfully, no holidaymakers suffered financially but the company’s failure resulted in the cancellation of more than 13,000 holidays and an awful lot of disruption for those who were in the middle of their holiday. Difficult times for the holiday sector without doubt and probably further failures to come.

Due diligence as I’ve already stated but this doesn’t just apply to the holidaymaker but to businesses supplying to that sector as well. ATOL won’t save you from a bad debt.

As a supplier, think outside of the box, get the “now” perspective on a business not the “was”. It’s a bit if a myth that all CRA’s base ratings and credit recommendations on historical ( usually accounts related ) data but that doesn’t apply to all CRA’s. Graydon, in particular look at many factors involving post accounting information. Let me give you an example. I mentioned earlier, Monarch Airlines Ltd. The last filed accounts are year ending October 2015 and show a pre-tax profit of £ 25 Million as opposed to the 2014 loss of over £200 Million. A significant turnaround so it would seem. But that was 2015 and I’ve already mentioned that there was a business saving cash injection from the parent company in November 2016. What’s more relevant, 2015 information or 2016 ? And you should apply these methods to any business account or prospect.

Allied to the right credit information provider, utilise your own research skills to give you the most up to date picture both on a particular entity and the sector in which it operates. Look at the was, the now and future prospects.