Consumer uncertainty is the greatest barrier facing future travel demand. Ensuring lasting relationships with consumers, employees and suppliers is critical for future success, an area where TUI Group is currently at risk.
The operator posted a net loss of US$802m in its Q2 results, whilst turnover decreased by -10.1% in comparison to the same period last year. Underlying EBITDA profit margin also decreased further from -3.4% to -19.4%. These financial results ended on 31st March; the next quarter will show an even more devastating decline.
As strict regulations on travel are still in place worldwide, TUI Group experienced losses, as did its competitors. However, a subsequent lack of demand is not the only problem faced by this operator.
Strong relationships across the board are vital for post pandemic recovery
A company that holds a strong relationship with its customer base will undoubtedly be in a better position once travel can resume. Disputes regarding refunds continue as some operators now only offer credit notes to preserve cash. TUI Group confirmed that refunds are still permitted but these are difficult to obtain and involve a time consuming process. Lengthy processes may jeopardize future bookings for the operator.
Relationships with its workforce have also been affected. TUI Group announced a global realignment program aiming to reduce its cost base by 30% and potentially leave 8,000 jobs at risk. This follows efforts to streamline and digitize business operations. This announcement may affect staff commitment, acting as a barrier to future financial performance and service quality.
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By GlobalDataAn effective relationship with suppliers is also critical to service future travel demand. May saw TUI group inform hoteliers that they will not receive 75% of money owed to them for holidays that were taken last winter until after the Covid-19 crisis has ended. Small hoteliers rely heavily on travel agents to bring in demand and generate revenue, deferring payments has caused uproar amongst the lodging providers that are involved.
Long-term impacts of Covid-19 also need to be considered
As a globally recognized brand operating across 180 destinations worldwide, TUI Group is undoubtedly in a better position than many to weather this storm. With around US$2.3bn in liquidity, there are funds available to cushion the short-term effects of Covid-19. However, substantial damage has already occurred across the industry supply chain, therefore the long-term impacts of Covid-19 on TUI Group may jeopardise the reputation and perception of the company for the future.
