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Profit warnings spike in travel sector

Profit warnings spike in travel sector

Listed travel and leisure companies are issuing profit warnings at an unprecedented rate, according to latest analysis from EY.

The sharp uptick has been triggered by coronavirus pandemic.

Thirty-nine FTSE travel and leisure profit warnings issued so far in 2020 have specifically blamed the impact of Covid-19 for a material downgrade to their profit expectations, reported EY, which has been tracking UK profit warnings for over twenty years.

This is almost five times the number (eight) of FTSE travel and leisure warnings issued in the first quarter of 2020.

Profit warnings citing the impact of Covid-19 have been issued by 57 per cent of FTSE travel and leisure companies so far this year.

One in six of the total number of Covid-19 related profit warnings issued in the UK in 2020 were from companies in the sector.

EY UK & Ireland head of hospitality and leisure, Christian Mole, commented: “Covid-19 has profoundly affected businesses’ ability to plan and forecast, driving a significant rise in profit warnings, which are currently being issued at an exceptional rate.

“Indeed, almost all listed hotel groups have officially withdrawn guidance for 2020.

“While there is extensive information on recovery times from previous downturns, the unique nature of the Covid-19 economic shutdown means that these aren’t reliable guides, making forecasting particularly difficult.”

He added: “The immediate priority for businesses has been dealing with an immediate cash crunch.


“The job retention scheme has been a critical element of this, together with the various tax and business rates concessions available.

“The recent extension of the coronavirus business interruption loan scheme to medium sized business is to be welcomed, but there remain concerns around response times and some of the loan criteria that are being applied.

“Additionally, the willingness and ability of landlords to support businesses through rental holidays and significant deferrals has been mixed.”

Record breaking UK levels

The number of profit warnings issued by listed businesses across the UK so far in 2020 looks set to hit record breaking levels, far exceeding the 2019 peak that matched the height of the financial crisis in 2008.

There have been 240 Covid-19 related profit warnings in total to date.

The sectors hit hardest include others affected by social distancing measures, including FTSE Retailers.

Planning for recovery

Mole added: “The past month has been exceptionally tough, and the recovery timeline remains uncertain.

“The restaurant sector in particular was struggling with overcapacity and low margins even before Covid-19; unfortunately, it feels inevitable that some businesses will not make it through the crisis.

“However, long-term forecast trends for leisure and eating out are positive – and one would expect a significant immediate increase in demand for drinking and eating out once the lockdown ceases.

“There is likely to be a more gradual recovery in hotels demand.

“Given inherently high fixed cost bases and that furloughing support will no longer be available due to some employees returning to work, planning how to address this period will be crucial.

“A longer-term concern must be the impact on business travel and conferences, a major driver of hotel occupancy.

“Given the recent experience of extended reliance on video conferencing, we’ll need to see whether this decreases the need for physical get-togethers in the future.”


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