According to the latest quarterly analysis of UK profit warnings from Ernst & Young (EY), the travel and leisure industry has issued more profit warnings than any other Financial Times Stock Exchange (FTSE) sector in 2020.
Travel and leisure companies have registered a 63 profit warning from the past nine months
This number is around triple the number EY had recorded during the whole of 2019 i.e a total of 23.
Nearly three quarters of the sector had issued a warning in that time period. Out of this, 95 percent stated the impact of COVID-19 as a reason for the same.
The report further found that profit warnings from restaurants and bars sub-sector were 25. This number was more than four times higher in this year than the whole of 2019 which was at 6.
Meg Wilson, Strategy Partner, EY UK, commented, “COVID-19 has hit the travel and leisure sector exceptionally hard, both operationally and financially. The sector has done a great job at putting people first, including protecting customers and employees, but even the strongest of businesses are facing tough decisions.”
Wilson continued, “Ongoing local and national restrictions and unpredictable demand continue to severely hamper the sector. Among businesses experiencing pre-existing issues, such as overcapacity, we have already seen a number of permanent closures, insolvencies and, distressed sales. The greater the grip of the pandemic, the deeper the economic fallout and the longer the road to recovery.”
The FTSE leisure sector issued the most warnings in the period to the end of September
This was followed by retailers and industrial support services, both at 49 and the media at 35.
Wilson added, “For businesses to survive, cash management remains a priority, and government support will continue to be necessary for some time. To address constantly changing patterns of demand, companies will need to rapidly transform their business models to be more flexible. Recovery will involve some significant restructuring across the sector, including resetting capacity and property costs, as well as addressing excessive borrowing.”
“The restaurant sector was already dealing with overcapacity issues before COVID-19 and we now expect to see a further reduction of around 20-25 percent of branded restaurants. Reduced demand for business travel will also necessitate the repositioning and potential redevelopment of many hotel sites for alternative use. Those who have the flexibility to weather this continuing storm, and can reshape, will find a significant opportunity for growth and consolidation,” concluded Wilson.