Although it's uncertain when large numbers of visitors from the United States and European Union will come back due to concerns about Covid variants, struggling U.K. tour operators need to take steps to ensure they're in a position to take advantage of the large-scale return of travelers.
When U.K.-based inbound tour operators Cashel Travel and Tiernan Travel announced last month that they had merged, the transaction signified more than another deal between two entities in the travel industry. It also was a sign of the steps that tour operators are taking to stay afloat.
The Cashel-Tiernan merger is not the only recent one involving tour operators in the United Kingdom. Several travel industry executives believe it may not be the last as difficulties brought about by the pandemic have put several tour operators in precarious situations that could result in more merger and acquisition deals.
“(It’s) doubtless there are negotiations going on being the scenes that we won’t hear about for some time,” said Sue Ockwell, who serves as the managing director of Travel PR, a firm that represents numerous tour operators inside and outside the U.K., and a spokesperson for the U.K.-based Association of Independent Tour Operators.
It’s also possible that some future mergers will feature U.K. tour operators consolidating with companies outside of the country. One such recent transaction has already taken place as TravelLocal, which specializes in tailor-made itineraries, announced in August it had merged with German company trip.me, a platform that enables customers to customize trips with the help of local agencies.
So what’s driving the array of mergers? Although it’s unclear how much of a bargain these deals are since no financial terms were disclosed, one major factor is the substantial loss of business experienced by many tour operators. “We released a survey on the 20th of July, and it showed that 87 percent of tour operators had lost more than 95 percent of their 2021 business,” said Joss Croft, the CEO of UKInbound, a trade association composed of 300 members, including roughly 100 tour operators.
Tiernan Travel is one of those tour operators that has struggled mightily in large part due to border closures as the 11.1 million inbound visitors that came to the U.K. last year represented a 73 percent drop from 2019. The company’s managing director Kristine Bileskalne estimates that roughly 80 percent of her clients come from the United States.
“Even if hotels, restaurants, pubs and other hospitality sectors are open, I could not have operated as usual as borders were closed and no international tourists — U.S. predominantly — could enter the UK or Ireland,” she said.
Bileskalne’s struggles led her to seek out assistance, which she found from Cashel Travel CEO James Aitken. “Combined experience and knowledge will help us become a stronger and more successful company so when Covid gets under control, this will give us a massive advantage,” the executive at Tiernan Travel said.
Another factor that may drive UK tour operators to merge is a lack of targeted financial support from the government. Croft stated the government was allocating grants to businesses impacted by Covid-19, but “those grants tended to be hospitality grants,” he said. “So you had to have customers onto your premises to get those grants. Of course, a tour operator doesn’t have customers on its premises.”
Croft explained that the grant scheme the U.K. government introduced was based on a giant retail grant scheme. “If you’re a pub, club, bar, restaurant, a travel agent in some cases or a food shop, then you got support. But if you’re part of the supply chain involved in that, you didn’t get the support. Event operators didn’t get it. Tour operators didn’t get it,” he said.
On one hand, there is actually optimism among a healthy percentage of UKInbound’s members regarding the future. In a recently conducted survey of its members, 48 percent of respondents, including tour operators, stated they were looking ahead to the next 12 months, especially as they were confident about bookings, visitor numbers and customer orders. That optimism follows the recent lifting of quarantine for fully vaccinated visitors from the U.S. and European Union, and it’s in stark contrast to the 11 percent expressing confidence in April 2020.
However, Aitken believes it will be difficult for the U.K. travel industry to immediately fully benefit from the return of visitors from those locales. Many businesses — including tour operators — that have accepted loans from the government are rapidly approaching the time to pay them off.
“But they don’t have any business coming in,” Aitken said about those tour operators. Thus he believes that come September, when the government’s furlough scheme is scheduled to expire, a lot of companies will merge or close as they’ve essentially lost the lucrative summer season.
Croft also envisions a difficult road ahead for many tour operators — “A lot of them have used the majority of their reserves over the past 17 months,” he said — due to the end of furlough.
“As the (furlough) scheme winds down at the end of September, that will put operators in a very difficult position. They’re either going to have to make their staff redundant and of course, redundancy costs in the United Kingdom as well. So I wouldn’t be surprised if we see more business failures.”
But Croft sees the struggles experienced by some companies as being a blessing in disguise in some cases. “Of course with business failures comes opportunities for the other operators to see how they can collaborate whether that’s a takeover, a buyout or a merger,” he said.
Croft stated he couldn’t provide any specific examples of mergers on the horizon. But he doesn’t refute the possibility of them happening.
“I wouldn’t be surprised if we start to see a little bit more consolidation in the industry because those who do have either government support or have been around for a long and have built up healthy reserves as a company, they will still be in existence and will see opportunities. I’m sure we’ll see a bit more of that,” he said.
Considering what the alternative is, Croft believes mergers can benefit the UK travel industry. “I think if there’s a merger or an acquisition, then it makes things easier for the international customers,” he said.
“But if it’s a pure straight business failure, then that does put the rest of the wider visitor economy at risk because people will probably switch to a DMC in France or Germany rather than necessarily scrambling around, trying to find a DMC here in the UK who they may not know. So in many ways, a merger or acquisition is preferable to a complete business failure.”
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Photo Credit: Scenes like this in London have been less common during the midst of the pandemic. mat_hias / Pixabay
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