Air travellers feel relief when the wheels kiss the tarmac. travel executives lack that reassurance. the resurgence of coronavirus leaves them up in the air, as news on tuesday emphasised. tui, europes biggest holiday group, has slashed future capacity again. whitbread, which runs the premier inn holiday chain, announced 6,000 job cuts. new lockdowns could trigger a fire sale of travel industry assets: planes, ships and hotels.
Already, analysts are reassessing cash runways. tui had 2bn left in its coffers on september 20, implying a 400m cash burn from its quarterly update six weeks ago. much depends upon bookings picking up from january, thinks bernstein. if these disappoint, the risk of another rights issue rises quickly. that explains why tuis share price, despite the backing of the german government, hovers just above 2020 lows.
Tui is famous for capital investment. it owned hotels and cruise ships worth 2.8bn as of september last year. such high values would hardly apply today. cruise ships, nearly half of the amount, are inevitably a tough sell. older ones trade at demolition prices.
One cruise ship, holland americas maasdam, started the year worth about $120m. it was sold at a scrap value of about $10m, thinks shipping specialist vesselsvalue. even new ships have lost about 17 per cent of their value this year.
That is real money for a company such as carnival corporation. its fleet value has already suffered an estimated drop of 26 per cent this year the equivalent of nearly $15bn. holders of its recently issued high coupon bonds, backed in some cases with ships, should scrutinise their security. carnivals enterprise value this year is down to about $27bn, mostly in net debt.
At least secondary transactions are under way in cruise ships. aircraft dealmaking seems even quieter. earlier this year airbus tried to auction off six new jets, which malaysias airasia refused to accept earlier, at about $50m each. airbus did not receive a high enough price, and the aircraft were withdrawn from sale.
In a few months, travel companies will have a better sense of how bad 2021 is going to be. before then, executives should try to value any assets they may need to sell. market prices may make them blench. but it will be wiser to accept the world has changed than hold out in hopes of a full recovery.
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