Firms that survive can sail on even stronger

firms-that-survive-can-sail-on-even-stronger

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.

Thursday, 2nd July 2020, 6: 11 am

Updated

Thursday, 2nd July 2020, 6: 12 am

Donald Maxwell-Scott is Technical Investment Manager at Rowan Dartington

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 will take several years for demand to get back to where it was before coronavirus 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.

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Flybe, the UK’s largest regional airline, collapsed in March, allowing other airlines 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 £600m, while IAG received £300m.

EasyJet has already announced that it plans to resume flights this month to certain destinations. So, there is every chance they can recover.

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 increases 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, can no doubt weather the storm. It is in a good financial position and has managed to navigate through difficult waters in the past, such as when the Costa Concordia famously ran aground and overturned in 2012.

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, its 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 steadily over the years.

Whitbread reported a pre-tax profit of £280m for their year to February 28, 2020, an increase of £62m 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 it is trying to raise just over £1bn from existing shareholders.

These are all very prudent measures, ensuring that there is plenty of cash on the balance sheet to weather out the current pandemic. Expect Whitbread to be around a little while longer.

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.

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About the Author: Kajal Khatri

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