UK tourism sector staggers in face of Covid-19 downturn
Travel companies listed on the FTSE issued nine profit warnings in the second quarter of the year.
This brings the total number of warnings issued in in the first six months of 2020 to 59, according to the latest profit warnings report from EY.
This half year total is more than four times the number of profit warnings (13) issued in the equivalent period the previous year and more than double the highest post-financial crisis annual total for this FTSE sector (28 profit warnings in 2018).
Nearly all (95 per cent) warnings issued in the first six months of the year cited the impact of Covid-19.
There were 46 FTSE leisure companies issuing profit warnings in the first half, representing more than three-quarters (79 per cent) of the sector.
Christian Mole, EY UK & Ireland head of hospitality and leisure, commented: “While profit warnings have decreased in quarter two compared with quarter one, Covid-19 continues to take its toll on the leisure sector, having exposed underlying structural weaknesses and exacerbating existing challenges.
“Despite the sector reopening after lockdown and a welcome government stimulus package, social distancing will continue to limit operating capacity and consumer demand.
“The continuing prevalence of working from home will mean that business travel and work-related hospitality will remain at low levels, severely impacting city centre demand and wider hotel occupancies.”
As well as having exceptionally high levels of profit warnings, FTSE-listed leisure is also one of the sectors with the highest number of companies warning three or more times in a 12-month period.
According to EY analysis, this level of profit warnings indicates a one in five chance of a distress event within the next 12 months.
This includes administration, liquidation, debt restructuring, company voluntary arrangement or distressed sale.
Mole added: “After the peak summer season, when staycation-driven bookings will be high, the financial stability of many businesses will come under renewed pressure.
“Quarter three will see the phasing out of the furlough scheme, which represents a significant period for the sector.
“It may also be an extended period of lower demand, particularly related to business travel and commuter spending.
“We expect many businesses will need to reshape their operating models to meet these new challenges, with more distress arising as they struggle to adapt.”