Travel agents & tour operators are getting smaller – or is the sector just changing?
November 22, 2023
Our analysis of the latest published accounts of the travel facilitation sub-sector of the wider travel and tourism industry in the UK formed the main basis of our recent market sector report on travel. Our report showed a picture of cautious optimism, but some clear weaknesses in the overall finances of the sub-sector.
A deeper dive beyond those financial weaknesses reveals another rather more fascinating set of statistics on the changes in the overall size of the sub-sector since our last report on it in July 2021, as per our summary of the financials here.
It should be remembered that because of the delayed filing deadlines for accounts at Companies House, the figures available to us in our latest report will be around 9 months old on average. So our analysis is based on financial periods ending towards the end of 2022. Our previous report in July 2021 reflected accounts for periods ending in the second half of 2020.
Number of travel companies is rising
The number of UK registered companies claiming at Companies House to be travel agents and tour operators has risen by 17% since our last analysis back in July 2021. This mirrors the steady increase in the number of companies in many of the sectors on which we report and reflects the rise in the number of smaller, independent businesses. In this case, this is probably driven by the migration of travel booking and tour organisation away from the bricks and mortar ‘high street’ model and onto a digital-only online approach, where start-ups are less capital intensive.
Total assets deployed are falling
Despite the rise in the number of companies in the sub-sector, their total assets have fallen from £12bn in July 2021 to only £10.25bn now. If this statistic is compared on an average basis, total assets per company have fallen by 27% from £2.4m to £1.8m.
There are a number of possible explanations for this, ranging from the sale of non-core assets to raise cash and pay down debt, to a more cautious valuation of assets in a challenging commercial environment particularly affecting intangible assets such as goodwill and brand values. It could also be caused by reduced investment in technology, which would be a major concern for the future in a market exposed to constant disruption and changes in traveller booking and communications behaviour.
Total debt has reduced
Overall, borrowings in the sub-sector have come down since July 2021 from £3.8bn to £2.4bn now. On a company average basis, the drop is 47% from £765k per company to only £404k now. This is a surprising outcome, given the easy availability of low interest rate debt under the various government schemes during the pandemic, most notably Bounce Back Loans. On the other hand, if the sector’s asset base is shrinking then the level of debt it can support will inevitably reduce.
Total net worth is lower
Net worth is the bottom line for commercial enterprises, the amount by which assets exceed liabilities. Here the transformation since July 2021 is greatest of all. Overall sub-sector net worth has dropped since July 2021 from £4.4bn to £2bn and on a per company average basis from £886k to £347k, a reduction of 67%.
To some extent, this may be the result of the increasing tendency across the economy as a whole to fund businesses with debt rather than equity, epitomised by so-called private equity funding or ‘zombie’ company model. There are now 17% of travel agents and tour operators with negative balance sheets and their combined deficit has gone up by some £300m since July 2021, though this is small by comparison with the overall fall in net worth.
In financial analysis terms, the logical conclusion is that the sub-sector has incurred losses and/or made asset write downs of some £2bn in the last two and a half years, reflecting principally the turmoil caused by the pandemic.
Could travel activity be migrating to non-travel multinationals?
The apparent shrinkage of the sub-sector might be attributable to the growing influence of online travel agencies (OTAs). Half of the top 10 ATOL brands are now OTAs. Booking.com illustrates this point well. They are now the 4th largest ATOL brand with 2.4m passenger authorisations. In September 2022, they were only 9th with 285k authorisations.
Unfortunately, companies like Booking.com report their finances publicly in various different sectors such as Other Business Support Services rather than as travel businesses and in any case separating out their UK activities from their worldwide finances is next to impossible. This will be causing some of the fall back in overall financial values.
What next for the travel agents?
Sentiment seems positive after much improved activity levels so far this year. Judging by the profit upgrades published by major airlines such as EasyJet, Ryanair and British Airways, travellers appear for now to have lost their sensitivity to prices in a world where every aspect of their lives is being impacted by inflation levels not seen for decades.
Nevertheless, the apparent fall in the financial muscle of UK travel agents and tour operators is a worrying trend, which must be watched closely in future.
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.