Australia / Analyst Insights
No Direct Route: Business Remains Uncertain For Travel Operators

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by Anh Nguyen
Aug 19 2020

Operators in the Travel Agency and Tour Arrangement Services industry have had to significantly restructure their business models over the past five years, due to the popularity of online booking platforms such as Webjet, Expedia, Booking.com, and metasearch websites including Skyscanner and TripAdvisor. The growing popularity of online booking platforms has forced traditional bricks-and-mortar travel agencies such as Flight Centre and Helloworld Travel to make several major changes:

  • Reduce commissions and service fees to remain competitive.
  • Increase their online operations by acquiring existing online travel agencies.
  • Establish their own online sites to create a new growth avenue.

Despite these structural changes and the growth in inbound and outbound tourism over the three years through 2018-19, the COVID-19 pandemic has reversed any gains accrued over the period. Industry revenue is anticipated to drop by 28.9% in 2020-21 and fall at an annualised 9.3% over the five years through 2020-21, to $5.3 billion.


The prolonged international travel ban, current domestic border restrictions and lengthy quarantine requirements have significantly constrained industry demand and put downward pressure on travel bookings, measured in total transaction value (TTV). TTV refers to the value of underlying travel services sold. Travel agents typically generate a commission from the TTV. In April 2020, Flight Centre Travel Group’s TTV was tracking at roughly 5-10% of normal levels, forcing the company to shut down its leisure brand shopfronts globally, including 428 local stores by the end of July and 371 Universal Traveller stores worldwide. In June 2020, Helloworld Travel closed its offshore centres in Manila and Mumbai, divested its US wholesale division and reported that TTV was around 10-12% of normal levels. However, the company anticipates bookings rates to improve in September 2020.  

To lower its cost base, the Flight Centre Travel Group (FLT) announced in March that up to 6,000 sales and support staff would either be stood down temporarily or made redundant. Other cash preservation measures include the $62.15 million sale of its Melbourne head office, raising $900 million in equity, and temporary suspending $15 million of its monthly sales and marketing expenditure until demand increases.

Similarly, Helloworld Travel Limited also stood down approximately 65% of the workforce, with the remaining 35% offered reduced working hours. The company has also implemented other cost reduction measures, such as raising $50 million in capital, renegotiating rent with major landlords, and pay reductions for senior executives and board members.

Governments throughout the world have introduced various assistance packages and stimulus programs to help businesses overcome the extraordinary trading conditions travel agencies and tour operators are facing. Australian businesses have been able to access the Federal Government’s JobKeeper scheme, which is set to expire in March 2021, to mitigate future job losses. Additionally, FLT has secured a €4.5 million government-backed loan in France and a £65 million debt facility in the United Kingdom to strengthen its liquidity position.

Operators in the Travel Agency and Tour Arrangement Services industry are forecast to face future challenges to overcome the ongoing uncertainty regarding the government's aim to control the spread of COVID-19 in the short term. However, as medical research progresses towards developing a COVID-19 vaccine and the eventual elimination of the virus, the industry is projected to recover from the effects of COVID-19 over the next five years. As the Australian Government eases social distancing restrictions, and opens interstate and international borders, businesses are anticipated to strongly rebound and benefit from the pent up consumer demand for domestic and international travel. As a result, industry revenue is projected to grow at an annualised 11.5% over the five years through 2025-26, to total $9.2 billion. 

 

IBISWorld related industries and company reports mentioned in this release:

Travel Agency and Tour Arrangement Services industry
Flight Centre
Helloworld Travel
Webjet Limited