THE TRAVEL DIARIES THE ANNUAL UPDATE FROM THE BDO TRAVEL TEAM

THIRD EDITION | 2020 THIRD EDITION | 2020 THE TRAVEL DIARIES

CLICK BELOW TO GO TO SECTION Welcome to the 2020 edition of The Travel Diaries, BDO’s annual review of the key developments in the UK travel market. This year we look back on what has been a very challenging year for the sector and discuss the changes that will follow as the sector looks to bounce back in 2021. This year our external contributors include: X Christopher Photi provides a superb assessment of the current regulatory regime and the cash crisis facing the sector; X Rhys Griffiths covers the legal challenges presented by the coronavirus pandemic; and X Liam McGuinness follows up on his 2019 domestic travel article and discusses the key changes facing the sector. A big thank you to all of them. Please get it touch with me if you have any questions.

HARRY STOAKES Partner | M&A +44 (0)7785 576 325 [email protected] THIRD EDITION | 2020 THE TRAVEL DIARIES WHAT WE CAN EXPECT FROM THE CRISIS

What a terrible year for the outbound travel sector. I’m sure you will agree that 2020 has been the worst year for travel in living memory and our thoughts are with all the teams across the country dealing with the crisis. I recently read last year’s edition of Travel Diaries and the predictions for 2020 were clearly way off the mark which is why the COVID crisis has been so hard to deal with as none of us saw it coming. Last year, we looked forward to a period where Brexit uncertainty was not rife and an uptick in deal activity. I think we would all take a bit of Brexit uncertainty now instead of the damage caused by COVID.

Unfortunately policy makers have not helped. It seemed that destination Before we cover what the future may hold, it is worth remembering what countries were being added to the quarantine list on a daily basis as the a success story the travel sector has been in recent years, accounting for summer progressed. The daily updates caught everyone unaware, creating 10% of global GDP and growing faster than global GDP. This success is an unpredictable market for the consumer. The open holiday season of down to the unrivalled emotions and memories travel gives us and that’s late June / early July was too short-lived and unfortunately with Lockdown why it will return strongly. 2 the outlook for travel operators appears extremely tough and expect So what can we expect from the crisis? further corporate failures as businesses run out of cash. THIRD EDITION | 2020 THE TRAVEL DIARIES

CHANNEL SHIFT TO ACCELERATE At the same time, retail-heavy brands such as Flight Centre have announced large-scale changes with half of its We have all got used to ordering everything online and travel is no different. These new shopping habits will stick retail stores closing. We expect these two examples of a strong valuation upheld at an online player with low fixed and we’re unlikely to go straight back to our old ways. Where a trusted adviser is required, this can still be delivered costs, and a retail-heavy agent closing shops to be analogous to what’s taking place across the UK. without leaving home so expect further pressure on retail models. THIS IS A CASH CRISIS A look at the On The Beach's (OTB) share price indicates that investors hold this view. OTB is valued at 15x 1200 1,121 its 2019 (pre Covid) EBITDA, reflecting investor confidence that it will rebound strongly. This crisis is unique in that it is not a collapse in demand following years of unsustainable 1000 consumer debt or a supply fallout from a geo-political or natural disaster event, it is a On The Beach Group (EV / FY19 EBITDA) 800 health crisis that has triggered government policy to advise against and restrict 885 30.00x our ability to travel overseas. 600 At the start of the crisis, we looked at the balance sheets of some UK outbound travel 25.00x A 350 operators and it won’t be a surprise to learn that in many cases, where revenue is D T I

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0 Neilson Iglu Riviera Great Rail Scott Dunn On The Trailfinders Audley Travelopia TUI UK Journeys Beach Source: latest Statutory Accounts on Companies House Cash Deferred Income THIRD EDITION | 2020 THE TRAVEL DIARIES

MORE TRAVEL BUSINESSES WILL FAIL THE MARKET WILL COME BACK ATOL Licensed Passengers (Millions) Sadly the failure of travel businesses is inevitable given it will be a long time Confidence will return because it always does following a recession and RANK COMPANY 2019 2020 YOY GROWTH (19-20) until they can release profit from departures. Travel businesses have been those travel businesses still trading and with the firepower to acquire running on fumes, surviving on deposits and cash received from advance customers online will gain market share. On The Beach raised £140m in 1 TUI UK 5.6 3.7 (33%) bookings and delaying cash refunds to protect their liquidity. Merchant debt and equity in May 2020 to see it through Covid, fund acquisitions and 2 Jet2Holidays 3.9 3.5 (11%) acquirers and the travel regulations will put businesses in a position to help fund the consumer rebound when it happens. Love Holidays has Expedia 0.9 0.3 (64%) where liquidity will get squeezed to the point of failure where new also raised further funds from its backers. 3 funds can’t be sourced. TUI research from the customer base in September 2020 suggested that 4 On The Beach 1.6 1.2 (26%) In other segments of the leisure sector, we have seen a wave of 81% of those asked feel confident about travelling overseas by September 5 British Airways 1 0.6 (41%) restructurings. A glance at the casual dining market tells a story of a frenzy 2021. Given the public’s acceptance of lockdown measures, this appears to Love Holidays 1.4 1.1 (21%) of accelerated sale processes for household names such as Pizza Express, be a very encouraging number. 6 Côte, Zizzi, Ask Italian, Café Rouge, Bella Italia, Las Iguanas, GBK and Byron. I imagine more affluent consumers, particularly the baby boomers, will be 7 easyJet Airline 0.8 0.3 (57%) We haven’t seen this in travel (yet) as businesses went into the crisis with so bored from lockdown that they will start ticking off their “must visit” 8 BravoNext 0.6 0.4 (32%) some cash and in the main have lower levels of operational leverage (rents lists where it is safe to do so. and other fixed property costs). But the recovery will require funding and 9 easyJet Holidays n.a. 0.5 n.a. The ATOL licenced passenger volumes provides some interesting insights. that’s when we will see new winners and losers emerge. TUI are down 1.8m passengers, or a third, from last year. On The Beach are 10 Southall Travel 0.4 0.3 (20%) In travel, thank heavens, we haven’t seen mass corporate failures. STA, down 25% and Love Holidays down 21%. All in a market where Thomas Source: Civil Aviation Authority ATOL report which had around a billion dollars of total transaction value (sales) Cook’s two and a half million passengers are up for grabs. worldwide, sadly went into administration in August 2020 leaving a big gap While outbound operators are experiencing severe difficulty, domestic UK in the market for youth travel which will no doubt get filled by more operators will have experienced strong trading as consumers substitute tech-led players offering culturally-rich tours and activity trips. With that in overseas trips for domestic breaks. Anyone taking a break in the UK summer mind, it is interesting to see Get Your Guide raise £100m last month. will have seen how busy and full everywhere was. As an example, I was Students of Schumpeter will recognise that when once in a lifetime speaking with a leading UK cottage rentals business in October that didn’t shocks like this happen emerging gaps in the market will be replaced by take any bookings from late March to the end of May yet will still beat more tech-savvy operators who provide more connectivity to the end its EBITDA forecast this year by 30% as it saw a surge of new bookings product, de-layering the industry further through creative destruction. from June onwards. We expect the domestic operators to continue to outperform, particularly the self-catering cottage segment, for a few years to come. THIRD EDITION | 2020 THE TRAVEL DIARIES

HOW LONG WILL THIS LAST? SO WHAT NEXT FOR DEAL ACTIVITY? Here’s a chart from the ONS. This tells me it took six years for Brits to get back to pre-recession overseas travel volumes. If COVID can be defeated and The outlook for private equity-led primary buyouts looks tricky for vaccines look like they may be available in 2021, I expect a much quicker recovery following a prolonged period of no travel and huge pent-up demand for outbound travel operators over the next 12 months. This is because new a break in the sun. Of course, the detail will show a mixed picture and the situation by income group will vary. We still do not know what the impact on bookings are slow, departures are extremely uncertain and lenders are unemployment will be when the government job retention support scheme comes to an end. going to be extremely cautious. In the last recession it took a couple of years, to 2011, before private equity deal activity in the sector picked up. 80 However, that does not mean deal activity is off the cards. My prediction 73 72 is the recovery will be deals-led where cash-strapped businesses will 70 69 71 70 69 combine to cut costs and benefit from scale. I expect deal activity between 66 66 64 corporates to increase, driving consolidation in the sector. Deals for 61 domestic holiday parks, self-catering aggregators and other domestic 59 60 ) 58 59 s 60 57 57 58 travel business which appear to trading strongly since the crisis started will n 56 57 o

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U (currently) and slightly depressed valuations as we come out of recession. 20 HARRY STOAKES Partner 10 +44 (0)7785 576 325 [email protected]

- 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Source: ONS THIRD EDITION | 2020 THE TRAVEL DIARIES THE CURRENT UK TRAVEL REGULATORY FRAMEWORK “STATE OF THE NATION”

At the time of writing, the UK is This has been exacerbated by the The industry has been expecting ABTA have only two choices to With a diminishing bonding The marketplace remains about to enter into its Second Wave inability of regulators to make another rebalancing ATOL protect their Captive. They can insurance market and FFI virtually challenging for travel companies. Lockdown – holidays are banned airlines timeously repay consumers consultation for the last year. impose an additional premium unavailable, an unsustainable ATOL Will advanced testing, social for a month – yet another blow to in line with EU261 legislation. It is surely coming but only levy on their members to top up ATTF and ABTA’s under pressure distancing measures and vacillating a beleaguered travel industry that The UK travel regulatory framework when the overworked and under the fund or seek their members Captive it does not take a genius to travel corridors really sustain has been reeling since the autumn was already a very weak patient resourced CAA can find time to to provide maximum protection work out that consumer protection a sensible travel market place of 2019 and the failure of the before COVID-19 impact. The get around to it. What will be the bonds (This is the option ABTA trusts may fast become the only or will it simply have to wait desolately managed Thomas Cook CAA managed Air Travel Trust main thrust of ATOL rebalancing? are currently applying) when option that a travel company can until a vaccine or sustainable Group. Regulators and larger travel Fund (“ATTF”), after a massive Almost certainly it will involve they can least access such implement to satisfy the, frankly herd immunity is established? entities would have run “war game >£500million hit from the failure the wider implementation of the bonds. Both these options in the penal, PTR. It is no coincidence that Unquestionably the next 12 months worst case scenarios” but none of Thomas Cook, was, and remains, CAA Approved Trust model that is current circumstances will be some large ATOL holders (e.g. Saga) promises only further unpalatable of them could have modelled nor unfit for purpose with negligible currently operated by companies unpalatable to their membership have announced migrations to an options to the current fragile envisaged anything as damagingly funds available (Exactly how such as On The Beach, Trailfinders which is diminishing. Frankly ATOL Approved Trust and some and unsustainable regulatory impactful and all invasive as little can only be guessed as the and Travel Counsellors. travel companies do not have new large ATOL start-ups, such as framework in the UK. COVID-19. Look at the pre-2019 Trustees have not published the What of ABTA’s bonding scheme excess liquidity and profitability the Fosun backed Thomas Cook CHRISTOPHER PHOTI statutory accounts of larger travel ATTF accounts since 31 March for non-flight packages and agent leakage capacity to fund additional Tourism, have announced they too Head of Travel and entities and the principal risks and 2018) albeit with the support of a pipeline monies protection? ABTA’s premiums nor to “invest” in ABTA’s will operate CAA Approved Trusts. Leisure Team - WHA uncertainties disclosures in their £75million government supported Captive insurer, the government cash backed bonding scheme. ABTA The problems travel companies strategic reports and identify which bank facility. In 2008 the CAA required back up fund to the ABTA members are struggling to source will have is the migration to the +44 (0)78 6779 3071 [email protected] ones listed “global pandemic” unwisely - I am not saying this bonding scheme, had £22m in it at existing and lower levels of bonding trust model and its impact on as a significant risk. with hindsight as I said this at 30 June 2019. What is in it now? from the insurance market – there liquidity but what if there is The EU Package Travel Directive inception – reverted the ATOL It would be good to understand is now virtually no market available simply no alternative? for CAA and ABTA insurance bonds 2015, enacted in the UK in The scheme to a bond replacement per its current position. There is a ABTA (The Travel Trust Association - and a paucity of insurers willing Packaged and Linked Travel passenger levy scheme, principally lack of transparency here – both is their main competitor) to write financial failure insurance Arrangements Regulations 2018 in recognition of the difficulty ABTA and CAA trumpet absolute continue to refuse to recognise (“FFI”) policies. Where can a travel (“PTR”), strongly driven by the Thomas Cook and TUI were having clarity and transparency from their trusts as an alternative to their company source higher bonds UK and specifically ABTA and at the time sourcing needed ATOL members and licence holders but bonding scheme or FFI. They, not from or alternative FFI from? The CAA, has been proven to be bonding, with the catchy line “Just do exactly the opposite when it unreasonably, want companies simple answer is they cannot. When unfair and unworkable for a quid” per passenger. Within two comes to disclosing to the industry to have a consumer protection a travel company has to meet travel companies in the current years the not so catchy “Just a (and consumers) the extent of the choice but if their own scheme minimum liquidity ratios with the circumstances as evidenced £2.50” became a reality. Where will back-up funds they fight so single- becomes unsustainable as there is CAA then an ABTA ask for higher recently in the resignations of the levy go now? mindedly to protect. no insurance market where else is bonding to be funded by their cash On The Beach and Loveholidays there for their members to go? from ABTA membership. backed bonding scheme is simply unworkable. Something has to give. THIRD EDITION | 2020 THE TRAVEL DIARIES THE LEGAL CHALLENGES PRESENTED BY THE CORONAVIRUS PANDEMIC The travel industry will not look back at 2020 with fondness. It has been the industry’s annus horribilis, with the coronavirus pandemic leading to the grounding of flights, closure of borders and the cessation of travel. These circumstances have thrown up a number of unique legal challenges for the travel industry.

OBLIGATION TO REFUND A local lockdown, or quarantine To make matters worse, travel This cashflow crisis has given rise The second phenomenon has Travel companies should ensure By far the greatest legal challenge requirement upon return, may companies had themselves to various phenomenon. The first been around the ability of travel that coronavirus measures has concerned refunds. It came as prevent the customer from being made prepayments to some is the creation of the Refund Credit companies themselves to issue form part of their normal safety a surprise to some that package able (or wanting) to travel, but this suppliers, most notably airlines, Note, which is nothing other than chargebacks against their suppliers management system so that they holiday customers had to be does not affect the organiser from and were faced having to pursue an I.O.U. provided by the travel where those suppliers were can be confident that suppliers refunded in full within 14 days of being able to provide the holiday. these suppliers to refund the company to the customer. The paid using a corporate payment have procedures in place to cancellation of the package, even A similar but far more controversial prepayments before passing them customer can use this Refund card. These payment cards offer manage the risks. if the cancellation was brought situation concerns FCDO advice. on to the customer. Credit Note to book a new holiday travel companies the ability to Travel companies can also put about through no fault of the The Government has been criticised In the early weeks, consumers, with the travel company, or initiate chargebacks under Visa / themselves in a better position travel company. In fact, organisers for issuing blanket advice against regulators and the consumer press otherwise demand a full refund Mastercard Scheme Rules where on cancellations and refunds if of packages have an obligation to travel to all regions and islands of were sympathetic to the challenges by its expiry date. Importantly, the supplier cancelled the original they are clear with customers in refund customers whenever there a particular country in situations faced by the industry, but this this I.O.U. comes with financial booking. This route has been the booking process and terms are unavoidable and extraordinary where the infection rate in a did not last long. In fairly short protection if the original booking most commonly used by travel and conditions on the effect circumstances, in the destination particular island might be very low. order, consumers were demanding was ATOL or ABTA protected. These companies which pay airlines using which coronavirus might have or its immediate vicinity, which As such, airlines are still operating full refunds to be paid and, with Refund Credit Notes have therefore a corporate payment card. Where on their holiday. There are also significantly affect performance flights to that island and borders encouragement and guidance from been an important way for travel those flights are cancelled, this has other mitigating steps which of the package or carriage of and hotels are still open. In that the consumer press, have initiated companies to manage the cashflow allowed travel companies to initiate can be taken, not least around passengers to the destination. situation, great controversy has chargebacks and county court burden caused by the obligation chargebacks under the Visa or managing the risk of recovering to refund. However, they have not Mastercard Scheme Rules if refunds The law on refunds has given arisen as to whether the FCDO’s claims to enforce their legal rights. prepayments from suppliers. been without controversy, with have not been paid voluntarily. rise to some interesting and advice, in itself, should trigger the The regulators – particularly the These are steps which every travel some commentators pointing out difficult questions as to whether customer’s free cancellation rights. CMA – have taken action to force THE FUTURE company should be looking at in that Refund Credit Notes have a particular scenario triggers REFUND CREDIT NOTES AND travel companies to pay refunds The coronavirus pandemic, and the order to manage the ongoing risks often been forced on a customer the customer’s free cancellation CHARGEBACKS and have (at the date of writing) disruption caused to travel, looks caused by the pandemic. obtaining formal undertakings from rather than offered as a genuine rights. For instance, there are With practically all bookings having set to continue well into 2021. Tui and Virgin Holidays to ensure alternative to a cash refund. RHYS GRIFFITHS many circumstances which might to be cancelled and refunded during Travel companies are therefore well that all refunds due are paid by a Partner & Head of Travel affect the customer’s ability or the height of the UK lockdown, and advised to make arrangements to long stop date. – Fox Williams desire to travel but which do not with no revenues coming in to the manage the risks of trading during affect the ability of the organiser this “new normal”. +44 (0)20 7614 2553 business through new bookings, [email protected] to provide the package holiday. this presented travel companies with a potentially terminal squeeze on their cashflow. THIRD EDITION | 2020 THE TRAVEL DIARIES THE CHANGING BRITISH HOLIDAY

The rise of staycations? It’s still happening. While 2020 gave travel operators an unparalleled shock, and the state of the industry remains complicated, domestic travel will see a sustained bump from the COVID-19 pandemic and ongoing Brexit complications. Liam McGuinness, partner and consumer lead at CIL Management Consultants, discusses what holidaymakers are looking for and how operators will need to react to stay competitive. Following years of continued WHERE TO? BUSINESS TRAVEL LONG-TERM OUTLOOK 3. Sustainability growth in the UK domestic With restrictions on international travel, holidaymakers are looking to ON THE ROCKS What does all this mean for travel Now, more than ever, people care tourism industry, VisitBritain explore the UK with coastal towns and areas of natural beauty set to Hotels, particularly those based in operators in the long-term? about low impact travel. Sustainable recently released its latest benefit from the boom. Devon, Cornwall and the Lake District rank highest city centres, face another risk: the Operators must adapt and bring and environmentally friendly options forecast, predicting a 49% decline among these desired locations, although it’s fair to say interest in doing decline in business travel for the facilities and assets in line with should be front and centre. in domestic tourism spend in something outside of the norm is increasingly front of mind. High quality long term. The almost instant mass consumer preferences in order to Despite a turbulent year, demand 2020. This is equal to a £44.9 accommodation in a remote but beautiful setting can be equally attractive transition to home working across remain competitive. CIL believes for staycations remains strong with billion loss to the UK economy. as holidaymakers seek a break from the mundane work from home lifestyle. every industry has proved the this falls into three categories: a clear opportunity to take further Devastating, but a reflection of While consumers are keen to use up their annual leave that wasn’t taken effectiveness of video conferencing. 1. Flexibility share in the near-term. However, the COVID-19 spring and summer during lockdown, concerns remain around sharing facilities with other As a result, companies already operators must react to changing lockdown that affected all types Restrictions can seem ever- guests. Accommodation that offers an outdoor focus and private areas will under pressure to cut costs are consumer behaviour to attract of business. However, what this changing and are certainly see increased demand. Camping stays, caravan parks and private holiday unlikely to fund business travel any travellers. Those that do not put data doesn’t show is the quick and unpredictable. Consumers want homes are highly sort after and may demand a premium; but hotels, time soon. flexibility and cleanliness at the unprecedented rebound in demand peace of mind when booking in B&Bs and theme parks may struggle considering current consumer Yet, as business trips wind down, heart of their offering risk that occurred as restrictions lifted advance. Giving consumers the concerns and regulations. we may see a rise of a new kind significant reputational damage, in July and August, and likely long- option to arrive when suits them, of travel: the working holiday. but for those that create stress-free, term opportunities to take share of A recent CIL survey showed that overseas holidays are a top priority pay nearer the time and allowing As working from home looks to safe and flexible holiday options consumer spend. In simple terms, for younger consumers once restrictions lift. There is obvious and free cancellation will reassure the become the norm, we may see a there is plenty of opportunity. as quarantine rules and restrictions understandable pent-up demand for international travel, with booking more nervous traveller. rise in extended breaks for home remain in place, domestic travel platforms showing an increase in searches for exotic locations like the 2. Cleanliness Maldives and Bali. But, as regulations and quarantining rules can change workers looking for a change of LIAM MCGUINNESS provides a more financially Consumers want a clean, safe rapidly, consumer confidence is low. Search interest will come back, but scenery – workers can maintain Partner – CIL Management secure and attractive option environment. Offering enhanced the level of demand depends on how quickly confidence can be restored. office hours online and explore Consultants for holidaymakers. cleaning services is an essential. Operators will need to flex with the consumer mood in order to reboot new cities and countries in their +44 (0)20 3829 2765 holiday demand. spare time. [email protected] THIRD EDITION | 2020 THE TRAVEL DIARIES

NEW UK The BDO Special Situations M&A team offer their insights. Household names across the travel In early March, only two months Virgin Atlantic had few assets On top of these temporary LEGISLATION industry are facing disruption at after the UK government against which to secure the loan; measures, several permanent an extraordinary scale. The sector announced a rescue deal for Flybe, even its valuable Heathrow changes are also being pushed INCREASES THE was already scarred by the fall Europe’s largest regional airline, landing slots had been mortgaged. through parliament at a faster pace of the likes of Thomas Cook and it collapsed into administration. Virgin Atlantic was supported than previously expected. First and Flybe before COVID-19, and now Then, with the onset of the global in its campaign by its suppliers foremost, distressed businesses RESTRUCTURING international travel restrictions pandemic, airlines were left to Airbus and Rolls Royce, but the are now supported by the most and social distancing measures navigate a complex landscape request was ultimately denied. significant changes to UK corporate are pushing previously stable of quickly changing quarantine Delta Air Lines (49% owner of restructuring legislation in almost OPTIONS FOR businesses to the edge. Virgin regulations varying from country Virgin Atlantic) is also barred from 20 years. The new UK Corporate Atlantic has led the way as the first to country. investing in foreign businesses Insolvency and Governance Act business to make use of the ground- By the end of March, easyJet had under the terms of a US state (CIGA), which took effect in June DIRECTORS OF breaking new UK restructuring grounded its entire fleet of planes; bailout, leaving the group with 2020, brings in permanent changes legislation introduced in June. As IAG is still negotiating with unions limited options for securing to the insolvency and restructuring Europe braces itself for a second over their plans to reduce their staff investment. We update on this landscape as well as temporary, CHALLENGED TRAVEL wave of the virus, BDO asks the numbers by 13,000 (31%); and later in the article. and largely retrospective, measures question “what restructuring tools Ryanair, initially bullish and asking The UK government has provided to help mitigate the economic are available to Directors to help governments to stop subsidising a number of temporary measures impact of the COVID-19 pandemic BUSINESSES AND them weather this storm?” and “the state aid junkies like Lufthansa to support businesses across including the relaxation of statutory makes the case that a professional and Air France”, is now managing its all sectors. These include a filing deadlines and restrictions on PROVIDES MORE review of options is often essential own redundancy plans. However, moratorium on commercial the use of winding up petitions. to support key decision making by far the most vocal representative property evictions for businesses for Directors. of the airline industry has been that default on rent payments POSSIBILITIES. Airlines were put in a particularly Virgin Atlantic. Back in April, the (recently extended to the end vulnerable position when closed airline started a campaign lobbying of the year), and a 6 month borders and local lockdowns the UK Government for £500m suspension of the wrongful trading came into place across the globe. of state aid, taking the form of laws to protect directors who The industry was already suffering a commercial loan and a credit would otherwise have to cease from wider market conditions guarantee to release funds from trading over concerns of trading an before any of us had ever heard credit card companies that are insolvent company (now ended). of COVID-19. currently withholding payments. THIRD EDITION | 2020 THE TRAVEL DIARIES

The new permanent measures are The Restructuring Plan represents The restructuring received final They have started with an Before the onset of the COVID-19 This could result in an exciting designed to protect businesses in a break from precedent in UK court sanction on 2 September announcement of another round pandemic, private investors had combination of approaches, financial difficulty, giving them insolvency legislation, borrowing 2020. Given that this was the of redundancies, this time of 1,150 amassed vast sums of money to matching capital with skills. valuable time to consider their elements from the US Chapter 11 first use of the legislation, it was staff. Another reminder that we are invest. In January 2020, Preqin Overall, a widespread move turnaround options. These include bankruptcy process, particularly encouraging to see that the court not out of the woods yet. estimated there was $1.5tn of towards consolidation seems likely. new moratorium protection, the controversial cross-class decided to apply historical scheme The ongoing government support cash on hand, double the level “Uncertainty” has become the restrictions on “ipso facto clauses” cramdown, which can see one or case law when considering and since March has protected travel held in 2015. The initial slowdown buzzword of 2020, and we can be (which allow suppliers to terminate more dissenting classes of creditors sanctioning the Restructuring businesses from cash flow crunches in activity at the outbreak of the sure that whatever investors and certain supply contracts during the bound to a particular course of Plan. This should give future users that would have normally meant virus has led to many investors executives have in mind for the moratorium or other insolvency action, where they previously of this legislation some comfort the end of the road. As winter sets being behind in deployment. coming months, they will need to proceedings), and a new “debtor would have been able to veto the as it gives an indication as to in and with no vaccine or other After months spent focussing be prepared for the unexpected and in possession” Restructuring Plan Restructuring Plan under UK law. the courts’ interpretation of the definitive treatment in sight, it is on their portfolio companies, consider their options carefully. that leaves Directors in control and This provides courts with flexibility new rules, relying on precedent. likely that new challenges will come protecting cashflows and COVID-19 has led governments to with the ability to do a cross-class to deviate from the established Unfortunately, for those of us to the fore. Support packages in analysing core competencies, usher in long-awaited legislation at cramdown, a tool not available distribution waterfall. The mere hoping to see CIGA in action, the magnitude of those in H1 2020 investors (particularly those with a lightning speed. The application of under the existing Scheme of existence of this new legislation is the controversial cross-class are not sustainable in the long- turnaround focus) are ready these reforms to achieve productive Arrangement and CVA procedures. likely to result in more balanced cramdown tool was not used as term, with the government already to start looking for new restructuring solutions in these Combined with the well-established restructuring discussions with each class of creditors approved looking for ways to balance the investment opportunities. unpredictable times will likely lead route of Administration and sales creditors as it gives companies the Restructuring Plan, so we will books after an expensive summer. Whilst Private Equity houses to some exciting transactions over via prepack, the restructuring toolkit more leverage in these discussions. have to wait for another company With creditor ledgers steadily are expected to lead the way, the coming months. Businesses is now vastly expanded and BDO The necessary compromise and to brave the unknown waters to ageing and negotiations over there is also potential for some and their respective Directors must welcomes this new addition to support from major creditors may see how the UK courts manage this delayed payments with suppliers exciting trade opportunities as assess all the options available the statute. well require a redistribution of element in practice. now entering their seventh month, market consolidators look to take carefully and seek expert advice some equity ownership to keep Meanwhile, Virgin Atlantic can now it is only a matter of time before advantage of synergies and scale. In when attempting to navigate these businesses flying. progress with its restructuring plan, previously strong businesses these unusual circumstances, trade this turbulence. Following the high profile making use of a refinancing package start to consider their options for buyers could see an advantage call-for-help from Virgin Atlantic, worth £1.2bn and implementing restructuring, including distressed over Private Equity buyers, who STUART DEACON it has become the first business annual cost savings of £280m. M&A and carve-outs. will need to take a more risk averse Partner, Special to take advantage of this new approach than trade parties by Situations M&A legislation, drafting a nature of their modus operandi. +44 (0)20 7893 3890 Restructuring Plan to implement [email protected] a solvent recapitalisation. THIRD EDITION | 2020 THE TRAVEL DIARIES TOP 10 ATOL HOLDERS PAX FALL BY 30% REINFORCING THE CHALLENGES FACING THE SECTOR Following a 7% year-on-year fall in 2019 of the top 2020 TOP 10 ATOL HOLDERS TOP 10 ATOL HOLDERS TOTAL PAX 2017-2020 4.0 (33%) 20.0 10 ATOL holders’ licenced passengers (PAX), 2020 (11%) 18.0 3.5 16.1 16.7 was meant to be the bounce back year. However, the )

s 3.0

n 15.0 2.5 ) 2020 ATOL report has reinforced the challenges that s 2.0 n 11.8 M i l o (

the sector is facing. This year, the top 10 ATOL holders (26%) i l o 1.5 (21%) 10.0 A X m P 1.0 ( have seen their licenced PAX numbers reduce by 30% (41%) n.a. (32%) 0.5 (57%) (64%) (20%) A X to 11.8m. 0.0 P 5.0 Expedia has seen the largest YoY reduction (out of the top 10) with a 64% decrease from 874k to 317k. TUI retains its number one place as 0.0 Loveholidays the largest ATOL holder but has seen a 1.8m (33%) decrease in its ATOL 2017 2018 2019 2020 PAX volumes. Jet2Holidays has seen the smallest reduction (11%) taking its licensed PAX from 3.9m to 3.5m. Source: The Civil Aviation Authority Despite Loveholidays’ licensed PAX reducing this year by 21%, it does have Despite the clear challenges still facing the sector, there is reason to be an impressive three year CAGR of +20%, growing its licensed PAX from 631k optimistic. Travel has shown itself to be one of the most resilient sectors in 2017 to 1.1m in 2020 to become the 4th largest ATOL holder. This is a having recovered strongly from previous crises (9/11, SARS, Ash Cloud, GFC considerable achievement for a company that was only founded in 2012. etc.) and COVID-19 will be no different. COVID-19 is of course an on-going In 2018, the top 10 ATOL holders had total licensed PAX of 18m. This year's issue and is likely to be one for some time to come, but travel volumes figure of 11.8m represents a 53% fall in 2 years. The top 10 ATOL holders are will return and when those do the businesses that have been able to trade likely to see increases in their figures next year, however, it is unclear when through these difficult times will be in prime position to take advantage. they will return to the heights of 2018. With better testing procedures, some good news regarding potential vaccines and treatments, 2021 could mark the start of another strong recovery for a vitally important UK sector. TOM URQUHART Senior Manager +44 (0)796 623 7943 [email protected] THIRD EDITION | 2020 THE TRAVEL DIARIES BDO DOMESTIC GROWTH LEAGUE

Congratulations to Original Cottages, Away Resorts 60% and Travel Chapter who make the top three of our 2020 domestic growth league. 50% METHODOLOGY R % 40%

The Domestic Travel Growth League is based on the domestic travel A G C

e companies with the fastest growing revenues. The following chart shows u n e the top 25 based on their three year reported revenue compound annual v 30% R e r

growth rate (CAGR). The list excludes pure play hotel groups, companies a e Y that do not have four years of audited accounts and companies with 3 20% revenue less than £5 million.

10%

0%

Source: Fame – Data sourced on 19/10/2020 & Companies House THIRD EDITION | 2020 THE TRAVEL DIARIES

THE RISE OF STAYCATIONS 25 July 2020 UK domestic travel has been on the rise for a number of years, driven by Britons substituted their international travel and instead explored the UK government confirms travellers returning to England the continued depreciation of the Pound, the increased choice and hidden gems right on their doorstep. Among the most popular UK traveller from Spain will be required to quarantine for 14 days quality in accommodation options, nostalgia for UK family holidays, hotspots were the serene Scottish Highlands and the iconic beaches in 4 July 2020 environmental concerns around flying and a shift towards shorter and Devon and Cornwall. UK hospitality reopens more frequent holidays. In his contribution earlier, Liam McGuinness from CIL, clearly depicts This year's unprecedented events led to many writing off this holiday season. the changing trends and the evolution of the domestic travel market. 23 June 2020 However, once the domestic travel restrictions were eased, we saw a much UK holidaymakers are developing a penchant for staycations and it Green light given for hospitality to open welcome boost in "staycations". looks like they will be opting for them for several years to come. 10 May 2020 On June 23 2020, the day Boris Johnson gave the green light for hospitality CHRISTINA TYMVIOU Restrictions begin to relax to re-open, domestic holiday providers enjoyed their busiest day for Assistant Manager bookings ever. Sykes Holiday Cottages reported a 221% YoY increase in 23 March 2020 bookings; Hoseasons: 270%; Haven Holidays: 150%; Coolcamping.com: +44 (0)20 7893 2547 [email protected] Lockdown begins 750%; Parkdean Resorts: 144%; and Best Western Hotels: 575%. 16 March 2020 PM advises against non essential travel 29 Jan 2020 GOOGLE TREND ANALYSIS FOR THE SEARCH TERMS “STAYCATIONS” AND “HOLIDAY COTTAGES” IN THE UK First two COVID-19 cases confirmed in UK

Staycations (UK) Holiday Cottages (UK) 20 Jan 2020 Holiday cottages: (United KingdoWHOm) declares COVID-19 a Public Health Emergency 100

80

60

40

20 Relative search term popularity 0

Source: Google Trends – Data from 23/10/2016 to 21/10/2020 THIRD EDITION | 2020 TOMS VAT: HOW TO OPTIMISE YOUR CASH FLOW

2020 has been an unprecedented year for the Travel Industry. Travel businesses in particular have been affected and have seen a significant reduction of income due to lock down measures restricting the movement of people and international travel. Now has never been a better time to think about VAT and cash flow and whether there are some simple steps that businesses could take to increase cash flow and the bottom line. Here are our top five tips.

DEFERRED HOLIDAYS DIRECT COSTS TOMS PROVISIONAL PERCENTAGE Tour Operators Margin Scheme Make sure your TOMS calculation A provisional TOMS percentage is applied to TOMS turnover on each 1(TOMS) VAT is typically accounted 3is fit for purpose and that you are 5VAT return to calculate the provisional TOMS VAT due. At the end of the when a holiday departs. Therefore, bringing in all the direct costs you TOMS year an annual calculation is completed and the TOMS VAT due if you have had to defer holidays can. The more direct costs you for the year is crystallised. The provisional TOMS percentage is calculated to 2021/22, then such income and can include the lower the margin based on the previous year’s TOMS liability. Due to COVID-19 it may no associated costs may fall outside and potentially the lower the longer be appropriate to apply last year’s provisional TOMS percentage. of this year's TOMS calculation. VAT payable. This may be the case if the TOMS turnover has significantly dropped due Make sure you only include tours to COVID-19. We would recommend that you review your position and if departed in the TOMS year in your appropriate, seek permission from HMRC to use the ‘actual’ TOMS figures TOMS calculation. each VAT return period or agree a reduction in the provisional TOMS percentage based on current trading activities.

CANCELLATIONS & REFUNDS PAID OR PAYABLE TOMS COSTS MARTYNE PEARSON The number of cancelled holidays The legislation allows you to bring Director 2may have increased with the 4in direct costs that are paid or are +44 (0)7970 023 325 COVID-19 restrictions. Per HMRC’s payable into the TOMS annual [email protected] guidance, travel businesses are still calculation. Make sure you bring in able to deduct any income received costs that are payable even if you from cancelled bookings from its have not paid your suppliers within TOMS turnover. Make sure you are the TOMS period. This will reduce deducting such amounts from your the margin and decrease the TOMS TOMS turnover as this will reduce amount due. the TOMS margin and subsequently any TOMS VAT payable. THIRD EDITION | 2020 THE TRAVEL DIARIES THE LENDING LANDSCAPE

Even before COVID-19 impacted the travel industry in a way that ash clouds, global financial crises and the combined force of SARS, bird flu and foot and mouth never did, the industry regulator was already evolving its approach to travel businesses, and in particular for those with debt.

REGULATIONS AND LENDER ALTERNATIVE FUNDING IDIOSYNCRASIES OF LENDING STEVE CARR In 2019, spurred by the already OPTIONS Even this is not without its Director | Debt Advisory weakening balance sheets of travel Looking to the future, travel challenges - those funds who +44(0)20 7893 2083 companies, examples of the CAA companies seeking to access the have not previously lent to the [email protected] tightening liquidity requirements debt markets will face challenges. sector will need to adapt to the became apparent, especially Some lenders will be jaded by a idiosyncrasies of lending to travel for those companies who had sector in which they have incurred businesses: for example, CAA borrowed more heavily. losses, and borrowers will need to regulated companies are unable With COVID-19, the added pressure seek alternative funding options, to give security in the normal way on companies from regulation for example by approaching debt in order to protect customers and and from lenders has further funds, who have hitherto been less lenders must rely on a weaker form tightened. Many funders are able to compete for travel business of security such as a share pledge. managing distressed travel portfolio thanks to the CAA limiting levels But for those companies who are companies, providing liquidity of debt, staying within the reach prepared, and who can articulate to those they judge are able to of bank credit appetite. This has in their strategy well to lenders, the successfully weather the storm. general restricted the number of ability to raise debt from non-bank Sadly there have been casualties companies raising debt from funds sources has historically allowed and lenders are clearly more which charge a higher price than the more flexible facilities, from lenders focused on their existing portfolio banks. However, should the banking with a greater willingness to take companies than they are seeking sector further reduce its appetite to into account shock events. These new-to-bank opportunities. One lend to the travel sector, this could bespoke debt facilities better allow thing is certain: lenders will not be an opportunity for debt funds to a travel business to withstand forget 2020 in a hurry. lend to successful travel companies unwelcome events, and in an by pricing risk more appropriately. uncertain world that might offer a rare piece of good news. THIRD EDITION | 2020 THE TRAVEL DIARIES THE BDO TRAVEL TEAM

M&A TRANSACTION SERVICES AUDIT TAX/VAT

PETER HEMINGTON HARRY STOAKES ANDY HARRIS DOMINIC STAMMERS NEIL STOCKHAM Partner & National Head of M&A Partner Partner Partner Partner +44 (0)20 7893 2344 +44 (0)20 7893 2307 +44 (0)7966 010 259 +44 (0)20 7893 2471 +44 (0)20 7893 2304 [email protected] [email protected] [email protected] [email protected] [email protected]

JANIE REID AMAR PATEL JO DAVENPORT GARY DAVIES EYAD HAMOUIEH Director Assistant Director Director Senior Manager Partner +44 (0)20 7893 3347 +44 (0)20 7893 2244 +44 (0)7800 682 103 +44 (0)20 7893 3902 +44 (0)20 7509 9419 [email protected] [email protected] [email protected] [email protected] [email protected]

SAM OTTERBURN RISHI VERMA RICHARD CRISP GEMMA FLANAGAN VICKY ROBERTSON Senior Manager Senior Manager Associate Director Senior Manager Principal +44 (0)20 7034 5889 +44 (0)20 7034 5877 +44 (0)7583 941 675 +44 (0)20 7893 2920 +44 (0)20 7893 2394 [email protected] [email protected] [email protected] [email protected] [email protected]

JACK MARSON-SMITH TOM URQUHART MARLI OLIVIER MARTYNE PEARSON Senior Executive Senior Manager Audit Manager Director +44 (0)20 7893 2292 +44 (0)7966 237 943 +44 (0)20 7893 3295 +44 (0)7970 023 325 [email protected] [email protected] [email protected] [email protected]

STEVE CARR CHRISTINA TYMVIOU ASHLEY RAWSON Director | Debt Advisory Assistant Manager Senior Manager +44 (0)20 3860 6181 +44(0)20 7893 2083 +44 (0)20 7893 2547 [email protected] [email protected] [email protected]

STUART DEACON LUCY MERSON Partner, Special Situations M&A Assistant Manager, Special Situations M&A +44 (0)20 7893 3890 +44 (0)7929 330 937 [email protected] [email protected] THIRD EDITION | 2020 THE TRAVEL DIARIES OUR RECENT TRANSACTION CREDENTIALS

M&A TRANSACTION ESCORTED TOURS ONLINE OTHER SERVICES AND LUXURY TRAVEL TRAVEL AGENTS TRAVEL

SELL-SIDE SELL-SIDE BUY-SIDE SELL-SIDE SELL-SIDE SELL-SIDE BUY-SIDE BUY-SIDE BUY-SIDE BUY-SIDE BUY-SIDE SELL-SIDE

Sale to Alcuin Capital Sale to Hotelplan Acquisition by Sale to Bridgepoint Sale to Travel Leaders Sale to Risk Capital Acquisition by dnata Acquisition by dnata Acquisition of Financial and tax Imagine Cruising Vendor DD regarding Partners Cruise.Co Development Capital Partners LoveHomeSwap due diligence on the acquired Holiday the sale of Iglu to LDC by a subsidiary of operations of Trans Planet, an Australian by Growth Capital Wyndham Worldwide Nordic Tours on behalf based travel company Partners of Tour Partner Group BUY-SIDE BUY-SIDE BUY-SIDE BUY-SIDE BUY-SIDE SELL-SIDE BUY-SIDE BUY-SIDE SELL-SIDE BUY-SIDE BUY-SIDE SELL-SIDE

Acquisition by Acquisition by Inflexion Acquisition by dnata Acquisition by Growth Acquisition by Clarity Sale to ctm Acquisition by Acquisition by ECI Partners Private Equity Capital Partners Travel Management Vitruvian Partners Jactravel BDO provided vendor BDO has worked on Elysian Capital back Investment in Go due diligence on the multiple financial due the acquisition of Key Travelling Limited by sale of Barrhead Travel diligence assignments Travel Limited from Alcuin Capital Partners to US-based Travel for dnata including the Livingbridge SELL-SIDE SELL-SIDE BUY-SIDE BUY-SIDE SELL-SIDE BUY-SIDE SELL-SIDE Leaders Group acquisitions of Gold Medal & Stella Travel Services

Sale to Equistone Sale to On The Acquisition by Acquisition by dnata Sale to Acquisition by Al Sale to SkyScanner BUY-SIDE BUY-SIDE BUY-SIDE Partners Beach plc Inflexion Private Rockpool Tayyar Travel Group Equity

BDO provided M&A, Acquisition Acquisition of Business due diligence and tax of Raptim Travel Direct by Reed INVESTOR SELL-SIDE BUY-SIDE SELL-SIDE SELL-SIDE advice to Mobeus and Mackay ADVICE Equity Partners and Ski Solutions on the MBO of Wilderness Scotland Sale to TUI Travel Acquisition by Sale to Holiday Extras Sale to Away Resorts Investor advice Portman Travel Group to LDC on its exit

SELL-SIDE BUY-SIDE SELL-SIDE

Sale to eDreams Acquisition by Sale to HotelBeds Portman Travel Group THIRD EDITION | 2020 THE TRAVEL DIARIES THE CONTRIBUTION WALL

2018 CONTRIBUTORS 2019 CONTRIBUTORS 2020 CONTRIBUTORS JAY LAKSHAM & LIAM MCGUINNESS LIAM MCGUINNESS SCOTT BRAIDWOOD PARTNER PARTNER FOUNDERS CIL CIL ON THE GO TOURS

NICK MUNDAY CHRIS PHOTI CHRIS PHOTI MANAGING DIRECTOR HEAD OF TRAVEL & LEISURE HEAD OF TRAVEL & LEISURE & FORMER OWNER WHITE HART ASSOCIATES WHITE HART ASSOCIATES CLASSIC COLLECTION HOLIDAYS

DANIEL SMITH IAN COYLE RHYS GRIFFITHS INVESTMENT TEAM CEO PARTNER & HEAD OF TRAVEL LIVINGBRIDGE HOLIDAYTAXIS GROUP FOX WILLIAMS THE TRAVEL DIARIES

FOR MORE INFORMATION: This publication has been carefully prepared, but it has been written in general terms and should be seen as containing broad statements only. This publication should not be used or relied upon to cover PETER HEMINGTON specific situations and you should not act, or refrain from acting, upon the information contained in PARTNER this publication without obtaining specific professional advice. Please contact BDO LLP to discuss these matters in the context of your particular circumstances. BDO LLP, its partners, employees and +44 (0)7785 308 245 agents do not accept or assume any responsibility or duty of care in respect of any use of or reliance +44 (0)20 7893 2344 on this publication, and will deny any liability for any loss arising from any action taken or not taken [email protected] or decision made by anyone in reliance on this publication or any part of it. Any use of this publica- tion or reliance on it for any purpose or in any context is therefore at your own risk, without any right of recourse against BDO LLP or any of its partners, employees or agents. HARRY STOAKES PARTNER BDO LLP, a UK limited liability partnership registered in England and Wales under number OC305127, +44 (0)7785 576 325 is a member of BDO International Limited, a UK company limited by guarantee, and forms part of +44 (0)20 7893 2307 the international BDO network of independent member firms. A list of members’ names is open to [email protected] inspection at our registered office, 55 Baker Street, London W1U 7EU. BDO LLP is authorised and regulated by the Financial Conduct Authority to conduct investment business. BDO is the brand name of the BDO network and for each of the BDO member firms. ANDY HARRIS PARTNER BDO Northern Ireland, a partnership formed in and under the laws of Northern Ireland, is licensed to operate within the international BDO network of independent member firms. +44 (0)7966 010 259 +44 (0)118 952 7340 Copyright © 2020 BDO LLP. All rights reserved. Published in the UK [email protected] www.bdo.co.uk

DOMINIC STAMMERS PARTNER +44 (0)7800 682 735 +44 (0)20 7893 2471 [email protected]

STUART DEACON PARTNER +44 (0)20 7893 3890 [email protected] 42008911