p16 sep19 17/9/08 22:25 Page 16
City & finance
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Big two shares
‘Cut excess stock or
rocket on back
of XL collapse
go same way as XL’
Four years ago accountant Barry Knight helped save MyTravel
THE COLLAPSE of XL Leisure Group was
from bankruptcy. Here he assesses XL Leisure Group’s failure
devastating news for its 1,700 staff and manage-
and offers advice for other operators. Lee Hayhurst reports
ment – but rival travel firms saw their values
soar. In the immediate aftermath of the collapse TRAVEL firms have been Knight said the secret to
the share prices of Tui Travel and Thomas Cook, warned they must review the saving of MyTravel was
which command 70% of the UK package market, what guarantees they have a mixture of successfully
soared on the FTSE 100. with suppliers and have negotiating extended credit,
Icelandic bank Landsbanki, one of XL’s main reliable sales forecasts if a “lucky” change in the
creditors, released an analyst note saying they are to avoid the same dollar exchange rate in its
the big two, along with fellow publicly listed fate as XL. favour, and addressing ex-
operator Holidaybreak, would prosper while Barry Knight (pictured), cess capacity very early on.
smaller companies would struggle. director of retail and He advised all firms to
“We reiterate our ‘buy’ recommendations on consumer products at start to look where they
Tui Travel, Thomas Cook and Holidaybreak, accountancy firm Smith & have committed beds and,
following the news about XL Leisure Group,” it said. Williamson, said the down- if they are facing trouble,
“It is our central proposition that supply will turn meant it was essential to be realistic in their nego-
fall by more than industry demand and that the to anticipate cashflow tiations with creditors.
two giants will prosper, while smaller operators problems early. “There is a real reluctance
go bust or materially cut back capacity as they Knight, who worked on to open up a discussion with
lack the necessary critical mass.” the refinancing that saved banks and creditors out of
Blue Oar Securities revised its “sell” advice for MyTravel in 2004, said fear the plug might be
the big two to “hold” saying: “With Thomas Cook there must have been a “severe downturn” in pulled. But you have got to be realistic,” he said.
and Tui already set to take capacity out of the XL’s finances over the summer. “One of the things we were very good at with
market, the failure of XL will ensure that, unless The CAA considered it robust enough to renew MyTravel was keeping the CAA informed about
one of the majors breaks ranks, margins will be its Atol as recently as April this year, he said. the progress of our refinancing.”
good going into next year.” One of the big problems at MyTravel was Knight said MyTravel benefited from its
XL had annual revenues of £500 million, overcapacity caused by the fact that its Going Places retail arm which gave it the sort of
compared with Tui’s £12 billion and Thomas business model was “supply-driven instead of feedback about what was and was not selling,
Cook’s £9 billion, but its demise took between 7% retail-driven”. which XL did not have.
and 9% capacity out of the UK holiday market. Knight believes XL, with its lack of distribution He warned the retail sector in general was
control, suffered from a similar problem. vulnerable in the current downturn, and the
Effect of XL’s collapse on Tui
“Running a travel company is a huge working travel industry especially so because of the
capital exercise,” Knight said. nature of the product.
and Thomas Cook share prices
“You have to have sufficient money at any one “If you don’t sell a holiday you can’t just put it
275 time to pay your bills. in the warehouse and bring it out next year.
“I suspect the XL failure will have been the “In other sectors you can discount and still
culmination of a variety of factors. make a margin; in travel it’s a 100% write-off.
250
Tui share price “Obviously, there is the downturn and the fuel “One of the reasons MyTravel eventually
situation, but the company appears to have got survived was we realised it was a retail business
Thomas Cook
share price
caught in relation to their working capital. and it was about how we managed stock prop-
225
“The real issue here is how good was their erly and got rid of it by the end of the year.”
LLAPSE
forecasting. Working capital is driven by whatO
XL C
200
you have locked in, in terms of guarantees and ■ Read Knight’s advice on how to keep your
September 10 September 11 September 12 September 15
fuel costs, and what the demand is.” business afloat at
ttglive.com/barryknight
16 19.09.2008
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