Barclays Forum: Travel leaders talk taxes, Atol reform and consolidation

Industry leaders gathered in the offices of Barclays Bank in Canary Wharf in London last week to discuss the big issues facing travel. Lee Hayhurst and Lucy Huxley report

Air Passenger Duty changes

Proposed changes to APD will see airlines hit for more taxation, even those operating in a more environmentally-friendly way.

The new coalition government has indicated it prefers a per-plane rather than per-passenger charge but the failure to include changes in the budget mean November’s APD hike will happen before any reform.

Alan Murray, managing director of Monarch’s charter business, said a per-plane tax should “theoretically be better for high volume, high load factor charter airlines”.

But he added: “Regrettably, with the current austerity measures, I suspect everyone will suffer.

“I’m probably more intrigued about what the government is going to do when emissions trading comes in in 2012. Doesn’t that make APD redundant?”

Former Hoseasons managing director Richard Carrick added: “Any increase from where APD is at the moment will have a devastating impact on demand, particularly for long-haul – but the industry has sat still and allowed it to happen.”

Airspace closures and compensation

The EU rules that forced airlines and tour operators to compensate customers caught up in the ash cloud crisis must be reformed, experts agreed.

Murray said the rules led to the “diabolical” situation of airlines being forced to compensate customers because of laws designed to stop the cancelling of flights for commercial reasons.

“If anything else comes from the ash crisis, they’ll have to start reforming the rules. We should be compensated, as should tour operators, because anyone who has paid out under the Package Travel Regulations is in the same boat. We had to deal with it, but none of us forecast a catastrophe like this and we did not think we were on the hook for it.”

APC and Atol reform

Chris Photi, partner at accountancy firm White Hart Associates, said: “I’m not a great fan of the £2.50 per-passenger Atol Protection Contribution; I wasn’t from the outset. As far as start-ups are concerned, it’s almost impossible now to start up in this industry, and I think that’s unfair.”

Andy Cohen, the CAA’s head of Atol, said: “APC has been received very positively by the industry. Following the collapse of the global markets it’s been a godsend. There are winners and losers in everything, but the majority of Atol holders are happier.”

Murray: “It’s made an unlevel playing field even more unlevel. You have tour operators having to cost in £2.50 per passenger APC, Toms VAT and health and safety, whereas dynamic packagers do not have those costs.”

Mergers and acquisitions

Photi: “It’s been fallow for two years or so but I expect quite a lot of activity this year and I think we could see some consolidation and not just the big two.”

Brendon: “The big two will carry on acquiring and Thomas Cook has said that. For the smaller companies to acquire, capital remains king and I don’t see many have much available to do so.

“For smaller companies such as us, it’s a much bigger leap of faith to be acquisitive in this climate.”

Carrick: “There is no doubt businesses that were minded to sell are sitting still. I think they will believe their best policy will be to wait and hang around for a better price.

“Consolidation will inevitably involve the big two but I think their sights will be set further afield in eastern Europe, China and India. There is no doubt there is an enormous amount of private equity around for people to invest in travel.”

Company failures predicted in autumn

Photi: “I think we’ll see quite a spate in September and October. The intangible is the volume of cash available and how badly that dents businesses.”

Brendon: “Travel companies without a decent balance sheet and good cash flow are going to struggle.”

Cohen: “I am expecting to see a large number of failures this year – mainly small businesses, but one or two in the lower end of the medium-sized companies too.”

Carrick: “I do not anticipate seeing too many failures because I think that the businesses that are left are pretty solid but those that don’t focus on cash will have a difficult time.”

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