News Category: Debt
One of the largest holiday firms in the United Kingdom, XL Airways, country's third largest package holiday operator, has collapsed and been taken into administration. The company blames the "volatile fuel prices and economic downturn up". The collapse of the company will impact 200,000 holidaymakers (who have made advanced bookings) and has left 85,000 tourists stranded abroad. Administrators of the creditors have ordered that planes be seized as part of the administration process.
Other airlines such as EasyJet and Virgin Atlantic have unsurprisingly announced that they would attempt to assist in the rescue of stranded holidaymakers trying to get home. Holidaymakers who purchased tickets directly from the company have found that they are now worthless and cannot expect any type of refund due to the indebtedness of the company. It is likely that tens of thousands of customers will not be able to claim on their insurance policies which do not cover the risks of business failure and receivership. Conversely, XL holidaymakers that purchase their tickets via subsidiaries, who are still solvent, will be entitled to a refund.
In a statement all the XL website, the administrators noted: "The Companies [XL Group) entered into Administration having suffered as a result of volatile fuel prices, the economic downturn, and were unable to obtain further funding. The Joint Administrators cannot continue trading the business and therefore all flights operated by the Companies have been immediately cancelled and the aircraft grounded. Going forward, the Joint Administrators are unlikely to be able to trade the business or operate the aircraft."
In the past year, of the high oil prices and the credit crunch have made the business environment and operating conditions extremely difficult for budget airlines. Budget airlines rely on last-minute bookings and had extremely price sensitive business models. Over twelve airlines have collapsed in the last year including Eos, MaxJet, Silverjet and Zoom. The industry's reliance on fuel means that the cost of going on holiday next year is likely to increase significantly as airlines attempt to return to profit. Consumers are being told every day in the news that a recession is coming. They have subsequently tightened their purse strings by conserving cash and cancelling future holidays. A survey by Mintel has revealed 60% of consumers have reduced their household spending including holiday plans. Last minute bookings on budget airlines fell by 20% in 2008 and in order to persuade worried consumers to go on holiday, early booking discounts may be on offer from next year.
The structure of the industry is likely to change as a result of increased costs. The merger and consolidation of holiday companies like the Thomas Cook group for example, is likely to be followed by the airline industry. Talks are already under way between British Airways and Iberia airlines with regards to a possible merger.