We’re all going on a summer holiday


Those familiar with the song taken from the film of the same name, are aware Cliff Richard is going on his summer holiday in a bus. However, since the sixties things have become more glamorous, with most of us preferring to fly to our summer destination.

When you land, the plane doors open, and you walk out into a beating hot Mediterranean sun – is there a better feeling? As a nation we love our summer holidays.

For many this year there will be no summer holiday. Even with lockdown slowly being lifted, it may take several years for demand to get back to where it was before Coronavirus (COVID-19) decimated the hospitality and travel sectors.

The Airline sector has been badly hit, with most keeping their fleet firmly on the ground. Not all will survive, but this does present an opportunity for those left standing when passenger flying resumes. Flybe, the UKs largest regional airline collapsed in March[i], presenting an opportunity for others to step in and pick up the most profitable routes. IAG (British Airways), Ryanair and EasyJet are all in a strong financial position, making use of the government furlough and borrowing schemes, so could likely survive the pandemic. Ryanair and EasyJet both received £600 million, while IAG received £300 million[ii].

The chart below illustrates the performance of IAG and EasyJet over a five-year period. As you can see the share price has fallen significantly, but that doesn’t mean the price won’t take off in years to come.


IAG and EasyJet performance over a five-year period


EasyJet have already announced that they plan to resume flights this month to certain destinations. So, there is every chance they can recover[iii].

The cruise industry, another holiday favourite, might suffer more than other travel and hospitality sectors because of the demographics of its customer base. They tend to be older and retired, and of course, most at risk from Coronavirus. This coupled with the fact that you are kept in a confined space for a prolonged period of time is likely to increase the risk of catching the virus. Even before anyone had heard of Coronavirus, many associated Norovirus with the cruise industry, so even when restrictions are fully lifted people might be cautious for some time before booking their next cruise.

However, it doesn’t mean that people will stop cruising, it might just take longer to get back up to pre-pandemic demand. Carnival Cruises, the largest cruise operator in the world may indeed weather the storm. They are in a good financial position and have managed to navigate through difficult waters in the past, such as when the Costa Concordia famously ran aground and overturned in 2012[iv].

If you are a successful and well-run company, then over time there will always be challenges. It is how a well-run company adapts to these challenges that determines it long-term survivability. 

A good example of this is Whitbread, the owner of the Premier Inn (and formally Costa Coffee). It was founded in 1742 by Samuel Whitbread and it is still going today. Plenty has happened since its founding that would make the current crisis pale in significance. It has managed to survive the Napoleonic wars, the Spanish Flu and two major World Wars, to name but a few.

Of course, their business has changed significantly over time. And this is the point, if a company wants to be around as long as Whitbread, then it must change and adapt over the years.

Whitbread reported a pre-tax profit of £280 million for their year ended on 28 February 2020, an increase of £62 million compared to the previous year. It also announced that it was scrapping any dividends this year. And it is currently undergoing a rights issue, where they are trying to raise just over £1 billion from existing shareholders[v]. These are all very prudent measures, ensuring that there is plenty of cash on the balance sheet to weather out the current pandemic.

Whilst the travel, tourism and hospitality sectors have been badly hit, we believe that a consolidation within the sector can be viewed as healthy, and those companies that do survive can emerge stronger than ever. It might just take time.

[i] City Am, Flybe's last flight: How Europe's biggest regional airline met its demise

[ii] Bloomberg, EasyJet Draws U.K. Virus Loan in Defiance of Founder

[iii] EasyJet, Latest travel information

[iv] BBC News, Costa Concordia: What happened

[v] Whitbread, Results, reports and presentations


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