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 company says that 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 year one of the most challenging years yet.

Since the beginning of last year 24 ATOL registered tour operators have gone into administration and 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.

The company's head of travel, leisure and tourism, Richard Hathaway, 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 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.

The company advises operators to ensure that they are looking closely at the underlying economic cycle, changing customer demographics, current business plans and seasonality of cash flow to make sure they have the full picture of risk in their business. In order to cope with these risks, tour operators should consider doing the following:

1.      Ensuring a spread of strong brands in high margin spaces, whether niche or otherwise

2.      Invest in a strong online and mobile channel, exploiting the latest technology

3.      Offer products which are dynamic and adaptable to ever changing customer preferences

4.      Put a significant focus on cost reduction and cash management

5.      Take steps to ensure a healthy and lowly geared balance sheet

Hathaway said: “Businesses who fail to take appropriate action are likely to have problems in the short to medium term. Operators with significant costs tied up in High Street retail operations or those focused exclusively in the commoditised end of the market will be more exposed than others to the economic and market uncertainty of the coming years."

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