p18 columnist sep26 23/9/08 15:07 Page 18
ttglive.com
commentnews
Chris Lee Barclays Commercial
“In all my years in banking,
I have never had so many
conversations about fuel
hedging”
T
ravel companies are approaching the As recently as a couple of years ago, foreign
final quarter of 2008 with a lot on exchange hedging and derivatives were often
their minds. The global economy, ris- the preserve of larger travel companies.
ing fuel and food prices, and a strong There has been a sizeable extension of this
euro have created a challenging backdrop. within Barclays’ customer base to smaller
We’ve also had remarkable volatility in companies which can now concentrate on core
sterling/dollar rates and falling house prices. trading having protected their budget rates.
And that’s all before the failure of the XL They no longer have to worry about all of
Leisure Group! their hard-earned profits disappearing as the
To make matters worse, we are close to the dollar or the euro moves against them.
time of year when operators become less flush The sterling/dollar exchange rate has gone
with cash, and some are seeing this pressure through significant movements in the last
come earlier as fuel and currency volatility hit month as prospects for the UK economy are
their cashflow. reported to have deteriorated.
While the talk is often about profits, Sterling fell sharply against the dollar in
and companies that fail are usually the past few weeks due to two factors: the drop
loss-making, it’s worth remembering in oil prices, causing appreciation of the dollar
the old adage “cash is king”. against European currencies, and change in the
Companies fail because they cannot market’s view of the Bank of England policy
pay their debts – not necessarily after last month’s Inflation Report.
because margins were too small. In all my years in banking I have never
So what can companies do to keep had so many conversations about fuel
the cash rolling in? hedging. Spot and forward prices of
Tight debtor and creditor control is different oil variants, such
essential and a strong emphasis on costs as jet fuel and bunkers, have
is paramount. Across several sectors, from become part of “business
large corporations downwards, 2008 has seen as usual” conversations with
the prudent ones examine every outgoing, from travel firms.
staff expenses, company travel and headcount, But despite the backdrop,
to cutting out unprofitable trading. there is still much evidence of contin-
In travel, the big two have led the way with ued consolidation and investment in travel
sizeable capacity cuts in 2008 and 2009, which from venture capital and private equity firms.
have lead to higher prices and better margins. Those companies with cash reserves and a
This has filtered downwards with far fewer last- good balance sheet could well enjoy some
minute £99 holiday deals than in previous years. good acquisition deals over the next year or so.
Mitigating risks from factors outside the
company has become more crucial than ever. Chris Lee is head of travel at Barclays Commercial
18 26.09.2008
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