FTSE Travel & Leisure companies have issued 54 profit warnings to date in 2020, equating to over two years’ worth of warnings.
This figure is six times the number compared to the same period last year when nine were recorded.
Profit warnings issued by quoted travel and leisure businesses this year have cited being exposed to the impact of national lockdowns resulting from Covid-19.
FTSE Travel & Leisure was the most dramatically affected in Q1 2020, with 70% of the sector issuing a profit warning in Q1 2020 – followed by Industrial Materials (63%) and Retailers (61%).
Hospitality profit warnings soar – survival is the first hurdle
Christian Mole, Head of Hospitality & Leisure at EY, UK & Ireland, commented: “The hospitality and leisure sector was hit hard and fast by the necessary actions employed to limit the spread of the coronavirus, with the sector almost entirely shutting down overnight. Whilst government support, particularly the job retention scheme, has assisted in conserving cash and minimizing business failures, surviving the initial lockdown is just the first hurdle. The challenge now is how to navigate a new form of normality in the face of continuing social distancing measures.”
Hospitality profit warnings soar – existing weaknesses exacerbated
Lisa Ashe, UK Restructuring Partner at EY, comments: “COVID-19 has created new problems, but it has also accelerated existing structural change and exacerbated existing weaknesses. When lockdown lifts, it will undoubtedly ease some pressures, but these underlying issues will remain. Businesses will need to plan carefully to consider what the new ‘normal’ looks like for both customers and suppliers and reshape their businesses accordingly.”
Looking ahead, EY expects the number of UK profit warnings to fall, but distress levels to rise – with echoes of 2008 to 2009 and the aftermath of the financial crisis.
Notably, there were more insolvencies in 2009 than 2008.
Christian Mole commented: “Anticipating a staged end to the lockdown, we expect travel and leisure sub-sectors to recover at different paces. Broadly speaking, travel will emerge more slowly behind leisure and hospitality.
“However, whilst we expect to see a gradual re-opening of hotels and lodgings such as holiday parks, where domestic demand could be bolstered by the forthcoming enforced quarantine period on travel into the UK, the position in respect of pubs, restaurants and many other leisure attractions is more problematic.
“Even if these are permitted to open again in July, as the latest Government announcements suggest, it is difficult to see how these businesses can operate profitably as long as current social distancing requirements are in place.
“Continuing Government support in respect of both salaries and potentially rent costs will therefore almost certainly be necessary for a significant level of re-openings to take place.”