news comment
ttglive.com
“Financial institutions will frequently view a diversity of destinations and suppliers as a strong advantage”
T
Chris Lee Barclays Corporate
he old phrase “Don’t put all your eggs in one basket” has come back into focus again recently on a number of fronts.
I have yet to come across anyone who claims
to have predicted a couple of months ago that Tunisia and Egypt would have suffered such a degree of political unrest. It is quite incredible that three weeks of such massive-scale public protests have brought to an end Hosni Mubarak’s 30-year tenure as Egypt’s president. From a travel perspective, the incidents in
Tunisia were a challenge, albeit with a manage- able number of UK holidaymakers in that coun- try at the time. But Egypt has been a different story. As we all know, Egypt, together with Turkey, has been a huge growth destination from the UK over the past couple of years as consumers have embraced non-euro destina- tions, and consequently the Egypt exodus was a large-scale operation that also affected many cruise operators. Thankfully, Red Sea destina- tions such as Sharm el Sheikh have maintained an element of normality. Agents and operators have once again had to deal with urgent, large-scale rearrangements that they can’t have predicted. The medium and long-term effect on Egypt as a destination is yet to become clear, but certainly in the short term its economy is likely to suffer a huge blow as UK and other European travellers choose different destinations. So who will be the likely beneficiaries? Will we now see a reversion to the traditional European destinations despite the problems of euro exchange rate uncertainty seen in recent years?
When assessing the credit risk of a travel
company borrower, financial institutions will frequently view a diversity of destinations and
16 18.02.2011
indeed suppliers or purchasers as a strong advantage as customers put off or prevented from travelling to one destination can, in most cases, be rebooked by the same company to another destination. The area of supplier concentration risk is
often overlooked, but there can be major issues when a large supplier or customer decides they want to amend their terms of trade even when a contract exists. The choice can either be to accept reduced terms at short notice or see a large proportion of your sales disappear overnight. This was evident with at least one major player in the travel industry in 2010. While a specialist product offering gives you a very valuable USP, keeping concentration risk in reasonable bounds is also a winning formula. One rule of business that will never be
overthrown is “cash is king”. Some of my most successful customers have some diversity of cashflow in their product set, particularly in terms of seasonality. Some, including a number with winter ski programmes, have benefited greatly from not having a really low time of year in terms of cashflow. Others who are dominant in their core field or destination, such as Southall Travel, Somak Travel and Balkan Holidays, have proactively looked to expand their product range to ease their concentration risk and benefit from greater diversity of income. Of course, the “eggs in one basket” rule applies in other markets as well and, coming from a family of lifelong Spurs fans, I am licking my wounds over the Olympic Stadium decision at present. Handy, then, that they still have the traditional option of White Hart Lane to pursue, having adopted a two-venue strategy.
Chris Lee is head of travel at Barclays Corporate
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