With Covid-19 vaccination rates rising and travel demand returning, the worst of the pandemic is likely behind us. But the road to recovery will not be smooth, and some travel brands may still have to struggle to survive. The pandemic caused massive financial disruptions in the travel and tourism sectors and affected balance sheets and business models that will last for years. Given these challenges, it simply won’t be enough to bring operations back up.

The sheer magnitude of financial disruption is an opportunity for forward-thinking companies to rethink the way they work, manage their finances, and create value for investors. Smart leadership teams have already started thinking through these issues, and there is significant risk for those who only focus on reaping short-term demand.

“Over the next 12 to 18 months, companies have the opportunity to take proactive steps to manage debt, increase operational leverage, invest in business building and proactively communicate with investors,” said Pallavi Kansal, managing director and partner, Boston Advisory group. “It’s an ambitious agenda, but it will place companies on a dramatically stronger footing when demand picks up again.”

Boston Consulting Group and SkiftX have compiled this analysis of the impact of financial disruption across the travel business, highlighting five top priorities for travel CFOs that will enable their businesses not only to survive in 2021, but to thrive in the years after.


BCG research shows the appalling extent of financial disruption. For example, travel companies in North America have taken on more new debt than other global markets. In 2020 and the first month of 2021, the North American travel industry increased its debt load by 62 percent to nearly $ 160 billion in absolute terms. These numbers were even higher for asset-heavy segments. For example, airlines increased their debt burden by 65 percent, and cruise lines more than doubled their debt in just 13 months.

The increased debt will weigh heavily on businesses during the recovery period as many will need to prioritize debt servicing over reinvesting in the business. This could have cascading effects and potentially impact areas such as employee compensation, fleet investments and upgrades, route expansions, and other areas that directly impact the customer experience. Debt corporations also become vulnerable to new competitors and emerging from bankruptcy who have the clean slate benefit and can take aggressive steps to capture market share.

In addition, BCGs are annual analysis of added value shows significant differences in Total Shareholder Return (TSR) – inclusive Key factors like growth Revenue, increasingly Profit margins or rating multipliers, and Dividends. Overall, the travel and tourism sector outperforms most other industries in terms of average annual returns over five years (2016 to 2020), but it also has higher variability in performance, meaning that the top performers far outperform can surpass.

“In early 2021, valuation multiples – or the median share price versus future earnings – for the travel and tourism industry were perhaps surprisingly higher than any other industry,” said Hady Farag, partner and associate director, Boston Consulting Group.

The high valuation is due in part to the low expected earnings, which admittedly are difficult to predict right now. But it is also due to the high expectations of investors, a warning sign that improved financial performance has already been priced in. In the short term, it is possible for investors to shift capital to more promising sectors inside or outside the travel and tourism sector.

“The individual travel segments have had different perspectives and value creation patterns over the past five years. For executive teams, this variability should be encouraging – every company has the ability to outperform, ”Farag continued.


The years to come will see both winners and losers in the travel industry. While each subsector faces unique challenges, companies that prioritize these five strategic imperatives will be able to exercise much more control over their destinies.

1. Manage debt

Excessive leverage will anchor performance and companies can aggressively manage their debt, including through bankruptcy. The US aviation industry in the 2000s and 2010s is one such example – virtually all of the players went bankrupt and emerged with leaner balance sheets and a more competitive business model. Many other businesses face financial headwinds without the protection of Chapter 11. You need to balance demands from debtors and credit rating agencies with protecting business health and willingness to benefit from the recovery.

2. Build operational leverage

The goal isn’t just to cut costs – most travel and tourism companies have already done so aggressively in order to survive. Rather, it is now about making the costs smart. Travel companies should try to keep fixed costs as low as possible while investing in areas that promote profitable growth, such as: “History has shown that companies that restructure their cost base during a crisis are able to accelerate quickly and see significant improvements in profitability,” said Kansal.

3. Invest in long-term growth

Rather than primarily struggling to regain profitability, companies should focus on investing to build the business for the long term. Research from the series of. the Boston Consulting Group Covid-19 Investor Pulse Checks has shown time and again that the vast majority of investors believe that financially sound companies should prioritize building critical business skills. This can enable companies to emerge stronger from Covid-19 and help meet expectations for financial recovery and post-Covid momentum reflected in today’s ratings.

4. Understand changes in demand

When the industry recovers, the demand will be different. For business travel, a shift to remote working can cause some companies in travel-intensive industries to scale back, while the same trend could lead others to travel more. Demand for leisure travel will also change, with domestic travel dominating the initial increase. International travel is likely to recover more slowly, but some people are more likely to avoid high-end travel on the bucket list once travel restrictions are lifted. Companies that are strong in these markets will enjoy the influx of rising bookings, but they must invest quickly to mitigate staffing bottlenecks and other operational challenges.

“Given the pressures to grow and this uncertain demand recovery, companies need to invest in a market discovery capability so they can quickly move resources like marketing, sales, and even fleet and network,” said Kansal. “It has never been more important to be really agile. Travel companies that do well will see both stronger revenue recovery – and an increase in market share – and more efficient use of spending. “

5. Interact with investors

Communicating with analysts and institutional investors is critical right now. The massive disruption from this Black Swan event means that the uncertainty is far greater than in the past. There is no precedent or model of how the recovery will go. Most investors have hypotheses, but they can vary widely. In this environment, travel companies have the opportunity to form and inform these hypotheses – provided they communicate consciously and proactively with investors.

As travel recreation gains traction, many companies are understandably tempted to focus on external factors such as demand projections and government restrictions. These factors are important input factors but are beyond the control of the company. Leadership teams need to focus on what they can control – strategic and financial decisions that determine the profitability of their business models. Due to the considerable pent-up demand, companies can take advantage of the opportunities that arise to restructure their financial position and capitalize on it during and after the recovery.

This content was created in collaboration with Boston Consulting Group and Skift’s Branded Content Studio, ShiftX.

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