UK based airline Flybe has gone into administration this morning. This highlights the impact of current UK events on the travel industry. Those such as Brexit and the new Coronavirus epidemic throughout Europe have no doubt created severe uncertainty for those seeking to travel to other countries and placed significant doubt in the minds of consumers. As a consequence, travel companies may experience an increase in financial struggle, which opens up the risk of becoming insolvent.
It may be that companies begin to question if they are able to meet their financial obligations in consideration of the ongoing issues detailed below. A company becomes insolvent when its liabilities exceed its assets and as such, it is unable to pay its creditors. This (in this case of an Administration) results in an attempt to rescue the company as a going concern. It may of course be the case that the business cannot be sold and as a result Liquidation will be inevitable.
The statistics of Coronavirus are rapidly increasing across Europe. This week the UK saw its biggest rise of 36 new cases in one day, the current total stands at 90 as of today. Despite this, these figures are significantly lower compared to other European countries, such as Italy, which has seen the most serious outbreak so far with over 3,000 cases and 107 deaths. The rise of Coronavirus is likely to result in less people travelling to other countries and result in a potential decline in consumer holiday purchases outside of the UK.
Given that new information is provided to consumers each day by the media, they face the decision of risking their health to travel abroad or cancelling pre-planned/anticipated travel arrangements. This is already having a direct impact on airlines and tourism industries. At present, the Home Office provides foreign travel advice to consumers and advises that all but essential travel should take place in order to minimise spread of the disease. However, whilst the borders continue to remain open throughout Europe, the risk remains on the individual to decide whether to travel abroad.
The International Air Transport Association (IATA) predicts that air travel will fall for the first time in the last decade and that airlines can expect to lose £23.7bn as a result of the Coronavirus. The tourism industry in Italy is predicted to lose £6.5bn as a consequence, as will other major tourist destinations, should tourism decrease. Now that we have seen one airline cease trading, can we expect others to be severely impacted from these circumstances? A loss of 23.7bn to the industry is a significant decline in revenue for the airline industry and suggests that a lot of financial instability can be expected in the near future.
Further to the Coronavirus outbreak, the UK’s exit from the European Union (EU) on 31 January 2020 is also impacting on the travel industry. Although at present, it is having less impact due to the transition period that the UK is placed in until 31 December 2020. Despite this, the future impact of the travel industry post-Brexit must be considered. There is no clear guidance as to how travel and visa arrangements will work when the UK becomes independent from the EU, and given that the right of freedom of movement will be lost, it appears that the rights we receive will depend on the outcome of negotiations during the transition period. As such, consumers will be reluctant to book travel arrangement in advance, until such a time that more information becomes available.
Further, if the expense of travelling abroad rises i.e. increased flight prices and additional visa costs, consumers may look to remain in the UK for their holidays, taking advantage of the various holiday parks across the UK and national parks such as the Lake or Peak Districts. Although this would positively boost the UK tourism industry, it would consequently have a negative impact on travel companies if consumers choose to remain at home rather than travel abroad for their holidays. However, until 31 December 2020 and the end of the transition period, it remains difficult to predict the extent that Brexit may impact the travel industry in the future.
Given the factors outlined above, it is clear that the travel industry will face a reasonable period of uncertainty. It is possible that many companies will face financial difficulty as a result of this. Coronavirus has already and will continue to have a significant impact on travel for the foreseeable future. Given that the number of cases continues to rise, it is difficult to say when the outbreak will end and when the travel industry will begin to pick itself back up again.
If you are concerned about the potential impact on your business or are at risk of becoming insolvent and would like advice in relation to this, please contact the author (Aman Sehgal who is highly qualified in this area and would be available to discuss your concerns with you. Please do not hesitate to contact on 0191 687 2050).