Brochures and Literature

May 2015 ATOL Compliance Checklist

Comment

TTC Blog

×

From 1 January 2015, all TTC blogs and articles can be found on our wordpress blog here


TTC Blog

Managing stakeholders through the M&A process

×

2014 is shaping up to be busy on the deal front. Just make sure you manage your stakeholders.

Traditionally, travel sector articles written in January come wrapped in optimistic platitudes about the year ahead as bullish commentators talk up the return of the good times. This year was no different, and for the fifth year running the phrases “turned the corner” “recovery in sight” and “consumer confidence improving” littered the pages of many a travel industry publication.

So are things getting better? Whilst it’s often difficult to separate frothy tactical posturing from the genuine improvement stories (it turns out some companies say trading is “amazing” when they really mean “achingly mediocre”) a more concrete sign of returning optimism is the rise in corporate deal activity.

According to the latest Mergermarket trend report released in January, Leisure was one of only three sectors in 2013 to show growth in the number and value of completed corporate takeovers. In what was an otherwise quiet year for UK M&A activity, high rolling Private Equity firms lavished £3.2bn on UK leisure acquisitions, their highest spend since 2009, and more than three times their outlay in 2012.

A month into 2014 and the trend seems set to continue with rumours of more deals in the pipeline. Private Equity firms are still actively seeking homes for their investment funds and there’s a noticeable uptick in interest from wealthy overseas investors. Both are making covetous eyes at any UK travel company with a niche and some growth potential.

Of course not all deal chatter translates to completed transactions and with so much complicated red tape, travel deals have to jump through more due diligence hoops than most. ATOL, ABTA, IATA, bond providers, merchant facilities and credit insurers can often be the most powerful stakeholders in a travel deal and achieving their approval can be more art than science.

So if you’re about to embark on the process, here are 4 steps that could help get your deal over the line. Get all of this right and your reward will be a smooth, efficient transaction with happy investors and few surprises. If you get it wrong? Well at least we’ve turned the corner and the recovery is in sight. Did you hear that consumer confidence is improving….?

1. Fail to plan, plan to fail.
Creating a formal stakeholder management plan will ensure nothing is left to chance and you don’t leave anyone out. Draw up a timeline working backwards from your planned completion date, and include how and when you will approach your key stakeholders for their blessing. Talk to them under NDA or on a no names basis where confidentiality is a serious concern.

2. Read the rule books.
Make sure you know who you need to tell and what you need to tell them. ATOL, ABTA and IATA all have strict rules on which changes are notifiable, and rule breaches can be punished by a show-stopping suspension. Be aware that changes of control can trigger increased bonding, so make sure this is factored in to your planned financial structure.

3. Sweat the small stuff.
Data hungry risk analysts require shed loads of information to sate their appetites and with any number of issues competing for their attention, even minor omissions can send your application back to the bottom of the pile. Avoid such unnecessary and costly delays by submitting a comprehensive detailed application, preempting likely questions upfront and responding promptly to any follow up requests.

4. Leave some fat in the timetable.
For one reason or another, the formal approvals process will take longer than you hoped. A straight forward change in ownership can take a month for regulatory approval and if additional bonding or cash injection is required you could even add a few more weeks to that. If circumstances permit, it’s definitely worth building in some contingency.

*First published in Travel Trade Gazette, 6 February 2014


Managing stakeholders through the M&A process

Get your house in order and take advantage of the upturn

×

May 2013

When Sir Mervyn King delivered his upbeatish economic forecast this week, he confirmed what business leaders in the travel sector have been saying for a while now – that a recovery is finally in sight. Ultimately, economic growth is a confidence trick, so such positive chat from The Bank of England and prominent business leaders may well pedal a virtuous circle of resurgence.

So what does recovery really mean for the travel sector? Well it goes without saying that more confident punters, unshackled from the fear of unemployment, with disposable cash in their pocket are good for travel bookings but its more than that.

A resurgent Thomas Cook yesterday announced a substantial debt refinancing package, simultaneously freeing up cash and deleveraging their flabby balance sheet. Pushing maturity dates out to 2020 has given the management team a clear mandate to go ahead and implement their much talked about new strategy. The new equity and debt facilities were secured on the back of healthier trading results, but more importantly they show a renewed appetite for the travel sector amongst banks and investors.

Whilst billion pound refinancings are of little relevance to the vast majority of travel companies, a positive effect should trickle down through the sector which is great news for the mid-tier. The traditional exit route of flogging your business to Cooks or TUI closed some years ago, and since then owners have sat on their hands, hoarding cash and concentrating on steering through the difficult times. This pent up exit demand seems to have been unleashed in the last few months as Private Equity houses and other potential investors make covetous eyes at the juicy cash flow profiles which are the envy of many a sector.

There was good news too for those looking to borrow. At the excellent Barclays Travel Forum this week, we heard from the MD of Barclays Corporate that banks were more than willing to lend, and that more than 80% of credit applications were being approved, but what was lacking was the risk appetite from owners and management themselves. The implication was clear: Barclays wanted to lend but couldn’t give it away.
So whether you’re looking to sell out or raise funds for expansion, how can you surf on top of this wave of recovery and avoid getting left behind or wiped out in the froth? The winners will be the best run businesses who have stayed lean and continued to invest.

• Management information needs to be tip top, with enough granularity to understand the critical drivers of performance.

• Business plans and budgets should be clear, with a firm handle on cash flow and enough contingencies to cover the unexpected.

• Regulatory certainty is a must: no sensible investor will take a punt with a regulatory Sword of Damocles hanging overhead.

Its not too late to get your house in order, and by acting now you can put yourself on the front foot.


Get your house in order and take advantage of the upturn

IATA rule changes and the creeping problem of double bonding

×

2012 has been a hectic year of change in the travel sector as businesses have got to grips with new ATOL requirements. The tumult looks set to continue into 2013, this time with IATA picking up the baton. The airlines body recently announced an overhaul of their agency rule book for 2013 as they look to reduce the size of losses incurred over the last few years.

Whilst some of the changes are long overdue many of them look like draconian bureaucracy that will saddle businesses with additional costs. It doesn’t come as any great surprise to see that the new measures to be imposed fall into 2 categories.

o Increasing the level, detail and oversight of reporting;
o Increasing the number of instances where security is required;

IATA’s moves are likely to increase the instances of double or even triple bonding after Flight-Plus and the new “Airline Ticket Agent” definition have resulted in more sales being bonded under ATOL. The system of protection here in the UK is an increasingly overlapping Venn-Diagram where ATOL, ABTA, IATA, Banks and merchant acquirers jostle for a slice of security.

Of course each of these bodies recognises there is a creeping problem, but it will take bold decisions to give up their share of the protection cake and paradoxically, this leaves travel companies with weaker balance sheets, lower profits and more cash locked up.

So what can you do about it?

1. Familiarise yourself with the new IATA rules and understand the impact as early as possible. You may have time to restructure your balance sheet before the new rules kick in.

2. Make sure you are being fairly assessed by ATOL, ABTA, IATA and your merchant providers. Incorrectly completed application forms and wrongly classified business types regularly lead to inaccurate risk assessments by these bodies which has significant implications on your bonding requirements.

3. Look at alternative sources of security. IATA are generally quite inflexible but ATOL and ABTA will consider alternatives to bonding that could result in a reduced bonding requirement and some significant cost savings.

Travel Trade Consultancy are offering IATA and ATOL Healthchecks to assess the impact of the rule changes. If you would like to book a Healthcheck, get in touch with us in the contact section.


IATA rule changes and the creeping problem of double bonding

Save money with a better Business Plan

×

An enduring legacy of the 2008 financial crisis is the continued difficulty faced by small businesses in obtaining credit, insurance, bonding or even so much as a free ballpoint pen from our formerly lavish banks and financial institutions. No sector feels this more acutely than travel.

Much of the rhetoric has accused the financial institutions of outrageous double standards. They’ve leached our tax-payer funded bailouts with one hand whilst taking a hatchet to our credit lines with the other.

This is only partly true! Surely as tax payers (and therefore part owners), we want to see them return to health. Some return on our investment would also be nice and lets not forget it was over-eager and illogical lending policies that helped get us into this mess. It is somewhat paradoxical that having lambasted banks for loaning people 5 times their annual salary to buy a house they cant afford, we cant understand why they wont take a blind punt on a business whose success is dictated by so many factors out side of its control (the weather, geopolitics, terrorism, exchange rates to name a few).

Take ATOL bonding. For a combination of reasons, they are now harder to come by. The woeful economic situation is a key reason but unquestionably, it hasnt been helped by the CAA’s move to the APC levy system back in 2007. These days, the only ATOL holders the CAA will ask to provide a bond are either new (less than 4 years old), or don’t meet the financial criteria. So banks and Insurers are no longer dealing with a large balanced portfolio of good and bad credit risks. They are pretty much all considered higher risk. It hasnt helped that the sector has been synonymous with spectacular, costly and depressingly regular failures over the last 5 years. If you were looking to hack off whole swathes of credit exposure over night, what better place to start?

Of course it isnt all bad news. There are still a few hardy souls prepared to write ATOL bonds, extend loans or provide merchant facilities but they can afford to be a lot more choosy. So how can you improve your chances and almost as importantly, secure the service at an attractive rate? A good place to start is your Business Plan.

Examples of benefits **
We see a lot of Business Plans here at TTC and all too often they are unclear and frustratingly light on detail. A sort of waffley, cliché heavy after thought. Experience has shown that in many cases, a thorough, well written Business Plan can make a big difference to the assessment by a regulator, bank, merchant provider or insurance company.

Aside from the obvious stuff: speeding up the process, reducing the number of queries etc, here are some genuine examples of benefits attributed to improved Business Plans over the past 2 years:

  • Example 1. The CAA reduced their bonding rate from 15% to 12.5% based on a clearer understanding of the risks it faced and other protection arrangements in place.
  • Example 2. A clearer description of how the business operated resulted in a reduced bond premium from 9% to 7%. An instant saving of £700 on a £30,000 bond.
  • Example 3. Based on the first draft of the Business Plan, no insurer was prepared to quote for a bond. With some reworking, a bond of £30,000 was secured at a premium of 8%.
  • Example 4. A more detailed risk assessment convinced the merchant facility providers to reduce the level of security they required by £100,000.

Three ways to improve your Business Plan **
Here are 3 tips to help you produce an improved Business Plan.

1. Be clear on what type of business you intend to run, how you intend to sell and what makes your business different from others? For example, all too many plans don’t differentiate themselves from previous failed businesses.

2. When will you be acting as an agent and when will you be acting as principal? How will you protect the packages you sell as principal?

3. What key risks have you identified and how do you intend to mitigate them?

In our downloads section you can find a sample business template with some key questions to help you get started.


Save money with a better Business Plan

The future of the Air Travel Trust

×

When Atol Protection Contribution replaced bonding in 2007, the grand plan was always to build up a healthy surplus in the Air Travel Trust, the government fund that pays out on Atol failures, before making a decision on how the industry should finance the protection of its consumers going forward.

Well it’s taken a bit longer than was expected back in those booming, halcyon days (thanks mainly to XL, Goldtrail and a worldwide recession) but there was news from the CAA this week that the Air Travel Trust deficit will shortly be cleared and the fund will finally have been paid off.

Whisper it, but the time is nearly upon us for a consultation on the future of the Air Travel Trust.

There are a few directions this could go, but here are a few suggestions for starters.

Variable APC

I’ve long been an advocate of variable APC as the current system makes little logical sense to me. Yes it’s simple to administer, but how can it be right that there’s a flat fee covering refunds and repatriations (currently £2.50 per passenger) with no appreciation of failure risk or destination distance. I’d be pretty annoyed if I paid the same motor insurance premium as Mario Balotelli or George Michael, or the same for my home insurance as Tony Martin or the people of Bocastle.

Instead, I would advocate operating more like the insurance industry (though without the pushy cartoon telephones, or those irritating meerkats) and using tiered APC premiums determined by business model.

So if you’re betting big on capacity with whole plane charters and hotel commitments to a single destination, you pay more than if you bundle up no-frills flights with a Hotels4U bed on an ad-hoc basis.

By offering a lower premium or a rebate for those who take steps to de-risk their business, you could even discourage the kind of irresponsible risk taking that caused some of those large failures.

A balance of Trustees

The current trustees are made up of executive and non executive directors of the CAA who put on a different hat once a month to act for the Air Travel Trust, often to discuss the same issues cropping up in their day job, but from a different perspective.

Though the current board of trustees are experienced, learned individuals who have acted in the interests of the trade, I firmly believe it would be beneficial to have greater separation from the CAA. There should also be more industry representation on a panel whose decisions have such profound implications for the travel trade.

As well as a mix of CAA and independent trustees, the other principles of corporate governance should also be applied such as a transparent election process, and term limits.

Reporting and Transparency

With approximately £45 million to £50 million of APC being paid in to the fund every year, (and in some recent years, a similar amount being paid out on failures!) there should be much greater transparency on what is happening with industry money. In my view, the annual set of financial statements is insufficient.

To put it into perspective, when the CAA regulates a business with £50 million turnover, the list of disclosure requirements covers an eye-watering 15 pages of application forms and checklists as well as ongoing monthly booking reports and management accounts.

We have heard before that this is an industry fund and an industry deficit so the industry should be entitled to greater visibility.

As a minimum, this should include quarterly information on the level of APC income, details on amounts being paid out for failures but also, information on ad-hoc settlements such as the recently announced Agent for Consumer rebate scheme.

This consultation will be a real opportunity to build a system that is sensible, transparent and owned by the industry itself. When the consultation comes round, make sure you have your say and in the meantime, keep praying we don’t have any more costly failures to delay it.


**

The future of the Air Travel Trust

News Articles

TTC Blog

×

From 1 January 2015, all TTC blogs and articles can be found here


TTC Blog

November 2014 - TTG Column - The insatiable appetite for investing in travel

×

What recent deals tell us about investors appetite for the travel sector.

Last Friday, the travel sector heaved a collective sigh of relief when Greybull Capital finally announced it had wrapped up its rescue of the Monarch Group. The deal saved the ailing operator at the 11th hour of its ATOL extension, and I don’t think it would be hyperbole to say it avoided a mini Armageddon.

Meanwhile, as the ink was drying on that contract, Equistone Partners, the Private Equity firm who already counted Audley Travel amongst its stable of investments, was finalising the acquisition of a chunk of Travel Counsellors, the iconic home-working business.

Whilst the back stories behind these 2 deals couldn’t be more different, they demonstrate the insatiable appetite for investing in the travel sector right now. In the case of Monarch, the fact that any offer was tabled at all shows a level of confidence missing since 2007.

Investment firms have cash to spend and banks are only too happy to chip in with leverage. It is, unquestionably a sellers market with recent deals valuing travel companies at between 8x and 10x EBITDA – profit multiples not seen in travel since before the recession.

All this activity is certainly keeping the regulators busy as they pore over the detail looking for risks. The UK are typically more interventionist than their overseas cousins but there are even reasons for them to be cheerful. The right investor can provide long term funding, bring valuable knowledge to a boardroom, and instill a financial discipline all too often missing from a sector fortunate to be funded by customer money.

There is certainly more activity to come, with rumours of further deals working through the pipeline and travel business owners up and down the land asking themselves the question “is it for me?”

Of course there is a lot to consider and closing a deal is not without its headaches. Expect a minimum 6 months’ grueling and protracted sale process and a Herculean effort to keep the tills ringing through the many distractions.

Nevertheless, travel is a sector so reliant on consumer confidence and so heavily influenced by global events out of its control that there is no telling how long this clamour will last before a “buck-a-roo”. I expect for many more owners over the next year, the answer to that question will be “yes”.

This article first appeared in TTG 6 November 2014


November 2014 - TTG Column - The insatiable appetite for investing in travel

September 2014 - TTG Column - ATOL and Package Travel Reform: Let the horse-trading commence

×

As you might imagine, the life of a travel regulations consultant has its good days and bad days.

Take last Friday for example, when in a rare moment of stage-managed showmanship and coordination, the UK government released not 1 but 2 long awaited texts concerning the future of travel regulations.

First the Department for Business, Innovation and Skills (BIS) released “the UK government’s response to the European Commission’s Call for Evidence on Proposals for a new Directive on Package Travel and Assisted Travel Arrangements”. As the comprehensive title suggests, it is a 140 page dossier laying out the UKs position for negotiating changes with EC Members States to the laws governing the sale of air and non-air holidays in Europe.

Not to be outdone in the bombastic report title stakes, the Department for Transport (DfT) released their “Response to the Call for Evidence On the Future of a the Package Travel Directive and ATOL implementation and Funding Arrangements” – a comparatively gaunt 48 pages, concerned only with the future of regulating air travel.

Was it worth the long wait? Well, given ATOL is the way sellers of UK air travel comply with the European Directive, the main conclusion from the DfT is that no further ATOL changes will be considered until the Europeans have finished deliberating, likely to be sometime in mid 2015 (for introduction into the UK in 2016/17).

Between now and then, there is a lot of horse-trading to be done between Member States to get to a final European Directive. Here are the key interests that UK government say they will be pushing:

1. Regulating should be determined by the territory “where sale was made/ offered” instead of “place where the business is established”
In attempting to eliminate barriers to cross border trading, the EU proposed a subtle shift to a make the “place of establishment of a seller” the deciding factor in where that seller should be regulated.

Such a change would open up the unedifying spectacle of companies regulatory shopping for the most lenient member states, not to mention the frankly ludicrous prospect of UK citizens begging, say CAA Latvia for repatriation home from Turkey.

No doubt foreseeing the chaos, our government is wisely pushing for “place where the sale was offered” to remain the key determinant.

2. Support for the widened definition of a package
The first draft from the EC contained no less than 6 new definitions of a Package that would impose liability more widely than Flight-Plus ever did, presenting a serious challenge to the agency/ OTA business model not least around TOMS VAT. Though many questions still remain around some of the definitions (Assisted Travel Arranger (ATA) seems a particularly strange one), the government have nailed their colours to the mast in support of widening the definitions – a move which is likely to deepen the already yawning schism between agents and tour operators.

3. End the obligation for companies to provide “open ended” consumer protection
UK government are proposing to replace the current unlimited guarantee so that companies should only need to provide “reasonable financial protection” for an amount of claims that could “normally be expected”, possibly through a maximum cap along the lines of the Financial Services Compensations Scheme. It is a vague, though well intentioned suggestion that is likely to be welcomed particularly by insurance companies operating in the sector.

4. Remove Business Travel altogether
There is a general consensus that the current proposals do not go far enough in removing Corporate Travel and other Business to Business sales from the regulations. Further suggestions have been made to exempt such sales fully.

5. Remove Domestic packages where no transport is included
The vagaries of the current European text mean all sorts of domestic arrangements are classed as packages, even where there is limited potential for consumer detriment (for example, hotel plus golf). The government would like the right to exempt such arrangements from stifling red tape, though it would be a rare and bold political move in European terms so expect strong opposition from other Member States.

So that’s 190 pages distilled down to 5 points.

Ill leave you to decide whether last Friday was a good day or a bad day…


Article first appeared in TTG September 2014

September 2014 - TTG Column - ATOL and Package Travel Reform: Let the horse-trading commence

August 2014 - TTG Column - Trust accounts

July 2014 - TTC Newsletter - ATOL Consultation, Rebalancing ATOL and the future of Small Business ATOLs

×

July 2014 - TTC Newsletter - ATOL Consultation, Rebalancing ATOL and the future of Small Business ATOLs

February 2014 - TTG Column - Managing Stakeholders Through The M&A Process

×

February 2014 - TTG Column - Managing Stakeholders Through The M&A Process

January 2014 - TTC Newsletter - 2014 Preview

×

The starter pistol has been fired for 2014 and as the Chinese Year of the Horse begins at the end of this month, the going is still looking pretty uncertain. . Read more in our 2014 preview


January 2014 - TTC Newsletter - 2014 Preview

August 2013 - TTC Newsletter - Summer of Consultations

May 13 - TTC Newsletter - Spring update

May 2013 - TTG Column - Getting your house in order

×

Getting your house in order


http://m.ttgdigital.com/opinion/comment-getting-your-house-in-order/4687703.article

May 2013 - TTG Column - Getting your house in order

September 2012 TTC Judges in Advantage Dragon's Den Competition

×

September 2012 TTC Judges in Advantage Dragon's Den Competition

January 2013 - TTC Newsletter - New Year

×

January 2013 - TTC Newsletter - New Year

October 2012 - TTG Column - Future of the Air Travel Trust

×

October 2012 - TTG Column - Future of the Air Travel Trust

September 2012 - ATOL Certificates concerns

×

September 2012 - ATOL Certificates concerns

September 2012 - TTC Newsletter Launch

×

September 2012 - TTC Newsletter Launch

June 2012 - AITO Conference - Agency Agreements

×

June 2012 - AITO Conference - Agency Agreements

May 2012 - TTG Column - ATOL Reform

×

May 2012 - TTG Column - ATOL Reform