The UK travel industry is buoyant, but how is business for travel agents?
November 16, 2023
Public confidence in travel agents
Despite the rise of self-booked holidays, self-assembled via the internet, over a third of UK tourists book their trips through travel agents, according to research by Travel Counsellors. Figures published by ABTA in October as part of its first-ever Travel Confidence Index shows a score of +72 for those who booked through a professional, compared to an average of +41 across all UK travellers.
The current state of play for travel agents
The latest travel agent tracker report by TTG Media for Q3 2023 confirmed many positives: rising average sales prices, a healthy lates market and shorter call wait times with suppliers. Conversely, it identified significant challenges. Enquiries, new sales and bookings fell to their lowest level of the year during the period, although most respondents still had a better Q3 than they did in 2022. The potential downside of the lates market remains, with customer spending highly dependent on cost of living considerations, particularly with winter and Christmas looming.
The mood in travel agents
The TTG Q3 23 tracker included some interesting insights into morale in travel agents:
“We have beaten 2022 sales already, so this quarter is now a bonus.”
“We seem to be busier than this time last year so hopefully this will carry on.”
“Bookings are rolling in, and we’re getting on top of our workload.”
Travel agency finances
We analysed the latest published accounts of every UK-registered company claiming to be a travel agency, a sample of 3,961 companies. These businesses deploy £4.1bn in total assets, have a combined net worth of £1bn and total borrowings of £386m.
Financial health rating
We used the Company Watch financial health analysis system to establish the overall financial profile of the travel agent sector. This rates each company out of a maximum of 100. Across the UK economy as a whole, the average score is approximately 50. Travel agents score just 38, confirming the sector as being below par financially with above average vulnerability.
Financial fragility
38% (1,524) travel agency businesses have a health rating of 25 or less out of 100, placing them in the Company Watch warning area. Companies in this category have a one in four risk of filing for insolvency or undergoing a major restructuring causing losses to stakeholders during the next three years. Across the whole economy, around 25% of companies are in the warning area, so this outcome for travel agents reinforces how vulnerable they are.
A further factor is that 35% of travel agents (1,389) have total assets of only £25k or less, making them dangerously exposed to trading losses, bad debts or other financial misfortune.
Debt
Average debt per company in the sector has fallen during the past year from £104k to £97k, but in reality, this is not an issue for the vast majority of travel agents. Our analysis shows that only 12% of them borrow more than a de minimis level of £10k. This reflects the fact that so many agents have little or no asset base to borrow against.
‘Zombie’ companies
617 (16%) of travel agents are zombie companies with negative balance sheets where their debts exceed the value of their assets, once more making them particularly vulnerable to any trading or other financial setback.
Negative working capital
Another measure of financial weakness is a negative working capital position, where short term liabilities are higher than easily realisable assets like cash, inventory and debtors. 479 (12%) travel agents are in this category.
Insolvencies
Fortunately, formal insolvencies like Administrations and Liquidations are rare in the travel sector, indeed there have only been 47 travel industry failures out of 17,227 insolvencies reported by the Insolvency Service for the eight months to August 2023.
Over trading risk
With the UK travel sector heading back to pre-pandemic activity levels and beyond, the one obvious danger for many under-capitalised travel agents is over trading by taking on more business than their financial and human resources can support. This must be kept constantly under review.
What does the future hold for travel agents?
These are uncertain economic times. Although inflation has peaked, the cost of living crisis is far from over, particularly as winter energy costs begin to bite into household budgets and spending capacity has to be channelled into the festive season. There is persistent talk of a recession, starting either in Q3 2023 or later in 2024. And travel agents needs to navigate the effects and constraints of current international conflicts.
How these issues will play out in terms of travel spend remains to be seen, but caution should be the watchword for travel agents as we head into 2024. Bonanzas like the spring and summer of 2023 don’t happen every year.
Find out more about the whole sector in our recent Travel Sector Report
If you are seeking professional advice for your business, Opus is here to help. You can speak to one of our Partners who can discuss options with you. We have offices nationwide and by contacting us on 020 3326 6454, you will be able to get immediate assistance from our Partner-led team.