From the TTG:
November 7th 2003 -02:08 PM
Summer losses at MyTravel have left the company with “insufficient” cash to survive winter, the group has admitted.
A company spokesman said: “It is now up to the banks to make a decision on whether there is still a viable entity coming out of this.”
In a profits warning, the company predicted it had made operating losses during the key summer months – the period operators rely on to make money.
It blamed the weak late-sales market and a new accounting procedure for its position, and admitted overcapacity and poor margins had left it exposed.
In the same six-month period last year, MyTravel made £130 million.
In a statement, the group admitted it had insufficient funds to get through the next 12 months, and conceded its future now depends on:
• Shareholder approval of the sale of US cruise, car hire and hotel booking businesses
• Bookings continuing at “satisfactory levels and acceptable margins”
• Agreement by the CAA not to suspend its bond
The group is understood to have written to overseas suppliers to ask for 90 days’ credit to see it past the January peak sales period. But hoteliers are said to be reluctant to comply.
The desperate situation emerged as MyTravel confirmed its latest fire sale, with US car hire business Auto Europe disposed of for £50 million.
In a statement, MyTravel chairman Eric Sanderson admitted: “The group’s earnings and cash flows will remain subject to significant risk through its high fixed-cost structure and high levels of indebtedness.”
Banks and regulators were informed of MyTravel’s predicament before the group issued the profits warning.
The CAA’s inaction suggests it believes MyTravel has a fighting chance.
But the next few weeks are crucial because traditionally fewer bookings are made.
The authority is always reluctant to intervene during the summer, when more customers are abroad. It also prefers to allow operators the chance to boost coffers during the peak.
However, MyTravel’s admission prompted calls for the CAA to step in now the summer is over.
Rivals are unhappy the group was allowed to continue trading this year, and blame it for fuelling overcapacity and lowering prices in the late sales period.
“Everyone complained to the CAA last time,” said an industry expert.
Another said: “The question now is ‘what is the CAA going to do?’.”
MyTravel insisted a revival was still possible.
A spokesman said: “If MyTravel gets the working capital to see it through the winter, then at that point we should start to see some impact of the turnaround.”
But he conceded an original timescale had slipped.
“In March, we said it would take two years before we start making significant progress in terms of climbing back towards the black, but it’s going to take a lot longer than that.”
MyTravel’s directors declined to speak to TTG.