Financial investment critical for travel operators but a conservative approach must be taken

Travel companies seeking additional aid from investors again and again will not only damage future balance sheets due to increased debt levels but also impact brand credibility. A conservative approach is critical for travel companies that have secured financial investment, as the duration of COVID-19’s impact remains unclear says GlobalData, a leading data and analytics company.

Johanna Bonhill-Smith, Travel & Tourism Analyst at GlobalData, comments:

“Securing additional investment has been a necessary move, even for larger operators such as Expedia, Booking, TUI and Trip.com as a means to weather the current storm.

“Those who have secured additional equity are without doubt in a better position to survive this exogenous event in the short term. While additional finance has been necessary to survive as government packages do not typically involve support for large organizations, high debt levels may threaten balance sheets for the foreseeable future.

Expedia originally secured US$1.9bn in a revolving credit agreement but last week management sought an additional US$3.2bn in private equity financing. This additional credit no doubt offers the company that vital extra cushion to withstand the impacts of COVID-19 for a longer period.

Bonhill-Smith further adds: “Share prices have also taken a significant drop which damages the credibility of a brand and potential appeal. Investors however remain faithful for now as the travel industry is known for its resilience.

“A conservative approach remains vital as funds will deplete if not managed carefully. Companies now need to be pragmatic in planning and draconian with investment, as if actions are not well thought out, this could lead to their downfall – if not a weaker position in the long term – a scenario which remains highly undesirable”.

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