31 Mar 2020
Posted in Travel & Tourism
Lack of consumer spending is one of the greatest threats facing global travel intermediaries, says GlobalData
Last year saw US$1.9 trillion spent on outbound global travel. Times of economic downturn, political instability and, in this case, a global pandemic will reduce both the ability and willingness to travel, severely affecting consumer spending for 2020. Ultimately, all companies are at risk amid the outbreak of the coronavirus (COVID-19), from the traditional in-store travel agency to the leading OTA, as financial performance is entirely dependent on the direct spending of consumers, says GlobalData, a leading data and analytics company.
According to GlobalData’s latest figures, US$166bn was spent on travel intermediation in 2019, which is equivalent to 8.7% of global expenditure. More was spent on transportation (US$472bn), retail (US$461bn) and accommodation (US$325bn), but lack of expenditure across these sectors will have a roundhouse effect on travel intermediaries.
Johanna Bonhill-Smith, Travel and Tourism Analyst at GlobalData, says: “Companies with a steady financial performance, operating through a multi-branded strategy and high cash reserves are more likely to survive in this war-like period. But ultimately, lack of consumer spending is the greatest threat faced by all travel intermediaries and travel sectors.
“Travel intermediaries act as the direct link in the chain of distribution between a company and the consumer base working in tangent with airlines, hoteliers, cruise operators and insurance providers. Therefore, the financial performance and downfall of any travel-related sector will have a dramatic effect on intermediaries”.
As numerous operators now seek additional credit to stay afloat, companies with steadier financial performance are more likely to receive credit. Travel players that also operate through a multi-branded strategy are likely to encounter quicker financial recovery due to servicing a wider market base. Additionally, those with a higher operating cash reserve are likely to be in a better position to outlast the effects of an exogenous event such as COVID-19.
Bonhill-Smith concludes: “Despite a significant drop in share prices amid lack of demand, OTA’s such as Expedia, Booking Holdings and Lastminute.com are likely to be in a better position. Traditional in-store travel agencies such as TUI and Hays Travel, however, will face greater challenges in a post COVID-19 world as more customers opt for an online booking platform over face to face interaction.
“As travel restrictions continue to impose on the freedom of movement the slump on consumer spending is not likely to lift anytime soon. It does remain clear however that the travel marketplace will be a lot less crowded as all companies struggle, with many on the verge of collapse”.