She said there are business owners facing massive reductions in revenue, with employees who are desperately worried about their jobs and suppliers whose work has dried up overnight. She added that there are hosts ‘who are looking at valuable income they earn from renting out their properties or rooms on a short-term basis, often to support paying their mortgage, completely disappearing’.
The knock-on effects on the UK economy cannot be underestimated, Karr said – pointing out that tens of thousands of people up and down the country are dependent on the short-term economy for their livelihoods.
“I am extremely worried about the long-term implications for the travel and hospitality industry if our government doesn’t implement the right policies in a matter of days. What is literally keeping me awake - it’s 4am as I write this - is the compounding effect of the decisions that company owners will have to make in the coming days. I personally know of business owners in other sectors that have had to let go 50% of their workforce overnight to ensure they don’t go under. I know senior business leaders who have been in tears because their partners have already lost their contracts and they are worried about taking care of their family if they were also to lose their job.”
Karr continued: “All the business owners in this sector want to do the best we can to protect our greatest assets – our people - but the industry is looking at months ahead with an estimated 80% reduction in revenue. If companies like Marriott are putting 10,000 workers on unpaid leave, imagine what this means for smaller companies who have less cushion to rely on. We need government help now on three core issues.”
One of these is safeguarding jobs, Karr said. “The biggest risk to the economy is a ‘death spiral’ of unemployment where companies let staff go because they can’t afford to keep them. These staff won’t easily be hired elsewhere, depressing spending in the economy.”
“That’s why it’s important to work on solutions that keep people employed. Failure to do so could put intolerable pressure upon already-stretched government resources in the shape of additional benefits payments and will inhibit businesses from being able to service any remaining demand, thereby condemning them to closure.”
She pointed to the Dutch government, which has introduced some measures which STAA believes is targeted and effective. These include a measure to cover up to 90% of employee wages for companies who experience revenue cutbacks of at least 20%, subject to a commitment not to make workers redundant. The Dutch plans also mean self-employed people being eligible for social assistance up to the guaranteed minimum income level without means testing. Lastly, all Dutch businesses are being granted a deferral on all of their tax payments, including corporation tax, payroll tax, VAT and business rates.
“Whilst we acknowledge that the Chancellor has extended the business rates holiday to cover all hospitality businesses, we would implore the government to extend this holiday to all of the above taxes, as the Netherlands has,” Karr said. “If similar measures are implemented in the UK immediately, they could go a long way to avoiding a sector collapse and aid a quicker recovery.”
Karr also points to the importance of maintaining cashflow for travel companies.
“Cashflow is a major issue now for two main reasons. Almost all guests are cancelling bookings, often because they are unable to travel to the UK. It means that short-term rental businesses and the broader travel and hospitality sector are required to issue refunds, draining the businesses of cash.”
Secondly, the demand depression caused by the Covid-19 outbreak means that businesses have no guaranteed income for the near future. “Even if they can survive the initial shock of cancellations, they may struggle for viability in the longer-term due to reduced bookings,” Karr wrote.
She continued: “The vast majority of these businesses are entirely viable in a normal environment, but they are facing the prospect of closing due to circumstances entirely outside of their control. We believe that there is a simple and effective measure which can help to keep money in businesses in the short-term.”
She believes that the European Union’s Directive 2015/2302 on package travel and linked travel arrangements - which covers pre-arranged package holidays and also self-customised packages - should be amended, as it forces all firms to give cash refunds if travel is restricted.
“We would encourage the government to coordinate with other European governments and the European Union on a suitable amendment to this Directive, which should also include all travel bookings, not just package bookings,” she said in her letter.
“We feel it is better to allow companies to issue refunds in the form of vouchers or credits for future use, instead of cash refunds, as this will both satisfy the consumer, and keep liquidity in the market. Moreover, it is a solution which is essentially free for the government, as it does not require payments to businesses or costs in terms of rebated taxes. Given its potential impact and limited cost, we believe that this solution should be pursued as a matter of absolute priority.”
Lastly, Karr called for grants not loans for the hospitality sector. “Whilst we welcome the Chancellor’s timely intervention in this crisis and the enormous level of financial support for businesses, much of this support has come in the form of loans. Uunfortunately, loans won’t solve the crisis.”
She said loans are a short-term solution that ‘simply impose a cost on businesses at some point in the future’. The ultimate effect of loans, she continued, could be to simply delay businesses being forced to close, rather than to prevent it, risking causing a double-dip as business exit the market once the emergency period has passed.
“We believe that the appropriate form of financial support to the industry must also come in the form of grants. The government has said it is considering a bespoke support package for airlines and airports. We recommend that it do the same for the hospitality sector. Ultimately, if the airlines are saved but the accommodation sector is not, then the tourism and travel industry will still suffer and the airline bailout package will have been in vain.”
However, Karr claimed that if the government provides direct and timely support during this ‘extreme demand shock’, then hospitality businesses will be able to stand alone once times return to normal. “If the government fails to support them now, by the time the emergency passes there won’t be much of a hospitality sector left.”
Karr said decisive action taken now in these three areas to protect jobs, businesses and industries will determine how deep and long the impacts of the Covid-19 crisis will be.
“‘Keep calm and carry on’ is Britain’s motto in times of crisis. If the UK government can help us all do that, we can ensure that we will survive this current crisis and be ready to help the economy to come out the other side,” Karr concluded.