Resorts claw back their cashflow

Resort operator Fosun Tourism Group saw cashflow turn positive in the first half, as its Club Med properties in China reopened, and performed strongly. 

Group revenues were down 41.9% year on year at RMB2,433.8m, leading to an adjusted ebitda loss of RMB565m. However, sales volumes at the Chinese Club Meds was up 171.9% year on year in the half, and business at the group’s Atlantis Sanya resort was also strongly improved, putting the site in profit.  

Also looking forward to a cashflow positive autumn is tour group TUI, which reported EUR320m of positive cashflow – excluding financing costs – for its third quarter. In the last three months, the company has taken 1.5 million bookings, recording a total of 4.2m for the summer 2021 season.  

And UK-based tour group Jet2 is looking forward to a brighter future, after recording a GBP373.8m loss for the year to end March 2021. The UK tour group served 14.6 million customers in 2019/20, with combination of package holidays and flights. The group’s aircraft were grounded for 29 weeks of the reporting period, and on restricted operations for the rest, due to government travel restrictions to reduce the spread of the pandemic. 

The company eased liquidity in recent weeks by agreeing a GBP150m term loan, maturing in September 2023, and issuing GBP387.4m of unsecured convertible bonds, which mature in 2026.  

Fosun operates Club Med resorts globally, has the Atlantis resort in Sanya and is developing a series of holiday villages under the Foliday brand, while it has also had some hotel and tourism assets acquired after the demise of the Thomas Cook group.  

As of July, around three quarters of Club Med global capacity was open for business, with average occupancy for the month of 67.1%. The company said forward bookings for the rest of 2021 are at 83.9% of 2019 levels.  

“We are fully prepared for the global business recovery in the second half of the year,” said chairman and CEO Qian Jiannong. From the rapid recovery of our overseas businesses in July, we see a silver lining towards the recovery of the company’s global business in the second half of the year.” 

Vice chairman Henri Giscard d’Estaing came into Fosun when it took over the Club Med business, and continues to lead the growth of the brand. At least six new mountain resorts are in development for opening by the end of 2023, with two of them in China. And a dozen existing resorts will be refurbished, and repositioned towards a more upmarket clientele.  

“To fight this crisis, our Club Med team continues to work hard and take strong actions to reduce costs as well as maintain a healthy cash flow. With the support of our landlord partners around the world, we also continue to renovate our existing resorts and prepare to open new destinations to drive our future profitable growth. I am confident that we are ready for the rebound, and that with our global value strategy, direct digitalized distribution and ambitious development plan, we will deliver profitable growth.” 

Fosun has relaunched the Thomas Cook name in several avenues. An online platform, Thomas Cook Lifestyle Platform has been downloaded 1.5 million times, aimed at urban middle-class families and a young clientele. In the UK, an online travel agency business has been launched; between them the UK and Chinese businesses achieved revenues of RMB274.8m in the first half.  

Also revived is the Casa Cook hotel brand. With 14 franchise agreements signed in EMEA and four hotel management agreements in China, the brand is on track to get to 30 properties by the end of 2023. 

At TUI, CEO asserted: “Business is coming back and TUI’s transformation is clearly having an impact. Customer demand and booking momentum are high as soon as travel restrictions are withdrawn.” 

The company is now staring at EUR4.7bn of loans used to keep the business afloat, and maturities on these have been extended to summer 2024. The company has continued to slim down the business, disposing of assets to draw in cash. In May, it received EUR541m from Riu, a first instalment against 21 hotels which it will continue to operate; a further EUR130m is due to be paid in 2023.  

At Jet2, there is little forward visibility, said chairman Philip Meeson, as ever-changing travel rules mean customers are leaving many bookings to the last minute. He described winter bookings as “satisfactory” and summer 2022 commitments as “encouraging”.  

Meeson noted: “Given the significant actions we have taken to carefully protect our cash balance and to improve our available liquidity and with our own cash balance as at 4 July 2021 of GBP1,460m, we are well placed to respond swiftly as the remaining UK government travel restrictions are finally relaxed and customer confidence recovers.” 

HA Perspective [by Andrew Sangster]: The results from the tour operators showed two things very clearly: this has been the worst downturn the travel sector has ever seen but there is no shortage of demand once supply constraints are removed. 

The problem is that there remain residual supply constraints for international travel, as anyone who has attempted to fly abroad this summer will testify. Tui summed it up with the comment: “Capacity plans flexed to 60% as a result of inconsistent government messaging on restrictions which has created uncertainty for customers.”  

The uncertainty is not only suffered by customers. Investors too are having to take a view on how long it will be before travel normalises. The delta variant of Covid has made the matter harder. This variant, now the dominant, in some cases such as the UK, exclusive, form of the virus is more infectious, even for fully vaccinated people. The vaccines are working in that, as Tui said, “hospitalisation rates are currently significantly lower, in spite of rising incident rates”. 

The mixed messages about travel restrictions meant Tui had a worse Q3 (this period is to end of June) than Q2 in terms of profitability (EUR449m negative underlying EBITDA versus EUR376m). Tui hit 876,000 customer departures in Q3 versus 159,000 in Q2, a huge improvement but the expense of capacity increases damaged profitability. 

This is a warning for other hospitality players and makes for a difficult few months of decision making. Should you max out capacity to exploit the expected uplift or should you be more careful to ensure expenses are kept under control if there is a more sluggish outturn than predicted? 

With international travel, it is hard to see it getting back to normality this year and perhaps well into next year. Testing is creating a significant financial disincentive for leisure travel and business travellers are being put off by the constantly changing rules that might leave them stranded in quarantine. 

But as Fosun is showing with its 5% uplift in first half revenue within its “happiness” division which contains tourism and leisure, where you have a strong domestic base, growth has been possible and will likely be even stronger in the months ahead. 

Ramping back up too soon will further damage liquidity but failing to capture the rising market will see market share losses. There are no easy answers out there. 

The ray of light is that governments are increasingly accepting that they will have to live with the virus rather than eliminate it. This means that, barring any new variant that proves resistant to vaccines, future lockdowns are much less likely. 

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