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'Make or break year for UK tour operators'

Wednesday 4th January 2012

A number of UK travel companies and tour operators will struggle to survive in 2012 unless they radically change their business models and adapt to a fundamentally new market environment, according to advisory firm KPMG.

The phenomenal rise of low cost carriers, online travel booking and the challenging economic backdrop, combined with fuel and Air Passenger Duty increases could make 2012 one of the most challenging years yet.

Since the beginning of last year 24 ATOL registered tour operators have gone into administration. The number of tour operator businesses facing "critical distress" is estimated to have risen by 49% in the past year.

Given that the economic cycle in the industry typically leads to cash reserves being at their lowest between November and January, operators find themselves now in the most risky part of the year.

Richard Hathaway, KPMG’s Head of Travel, Leisure and Tourism said: "The traditional high-volume tour operating model based on customers pre-booking flights and accommodation packages well in advance is in long term decline as more and more travellers opt for self-packaging online and niche solutions.

"To survive, operators must ensure that they are flexible and in a position of financial strength. Operators who do not adapt their business model to meet the demands of today’s holidaymakers will face increased risks in the next year, including takeover or business failure.

"There will be increased restructuring as operators adjust their balance sheets to strengthen their position in the face of longer term structural changes in the market and shorter term economic pressures. While some traditional tour operators have introduced change and flexibility, or are in the process of doing so, others will face financial discomfort and those with weak balance sheets and poor forward sales will be hit hardest.

"The UK tour operator market especially for overseas travel is shrinking. After a long period of year on year increases, the total number of overseas holidays taken by UK travellers has seen a 20% decline between 2008 and 2010, and now stands at about 36 million per annum, a level last seen in 1999. In the same period, the number of package trips, which by contrast had hardly increased over the previous 10 years, declined to 14.1 million – comparable levels last seen in the mid-1990s."

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Mike Jones

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