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STA Travel becomes latest casualty of coronavirus crisis

Package tour firm, which employed around 500 staff in 50 high street branches in the UK, confirms it has ceased trading

STA Travel, which offered package tours for backpackers and adventurous young people, has become the latest business to cease trading because of the coronavirus pandemic . The travel company employed around 500 staff in 50 high street branches across the UK and at its central London headquarters.

A statement posted on its Twitter account read: “To our valued customers, due to the recent announcement that STA Travel UK has ceased trading, unfortunately our team are unable to assist you at this time.

“Please be assured that if you had a previous booking with us, or hold a live booking, you will receive further communication in the coming days. We are sorry for the inconvenience and the limited information available to you at this time.”

The company, which went into administration on Thursday, was licensed to carry around 30,000 package holidaymakers a year under its Air Travel Organiser’s Licence (Atol) bond.

A spokesperson for Abta, the trade association for the UK travel industry, said: “People will have used STA Travel to book package holidays as well as individual air tickets.

“The majority of holidays sold were flight-inclusive packages, which are protected by Atol, and scheduled airline tickets only, which should proceed as normal. Non-flight based packages will be protected by Abta.

“If customers booked a package holiday through STA Travel, and the holiday is provided by another tour operator, they will need to contact the tour operator, who should be able to confirm that their booking will go ahead as normal.

“STA Travel will be a name that is familiar to most people who will have used them to travel or been aware of their name on the high street, and this distressing news will sadly affect the livelihoods of hundreds of employees.”

STA Travel was founded by two Australian backpackers in Melbourne in 1979 and originally stood for Student Travel Australia. It was later rebranded to become Student Travel Association, and subsequently Start The Adventure.

The Civil Aviation Authority (CAA) told customers it was aware of a number of consumers whose bookings had been cancelled by STA Travel Ltd as a result of government advice or flight cancellations .

“Consumers who have accepted valid refund credit notes or are due refunds for the cancellation of their Atol-protected booking will be able to submit a claim to Atol through our online portal,” it said. “If consumers have a flight-only booking that was Atol-protected, they will only be able to make a claim if they are still due to travel and have not received a valid ticket.

“Otherwise, consumers should speak to their airline, including if the flight has been cancelled or they have received a voucher for a cancelled flight.”

The company’s announcement comes after Qantas announced on Thursday that it would not operate intercontinental flights to and from Australia before the second half of 2021.

Earlier this month, Voyager Travel Direct, an online firm based in Sheffield, ceased trading. At that time, the CAA said, 16 Atol-protected companies had gone bust since March.

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STA Travel went into administration ‘with tens of millions tied up’

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Youth travel agency STA Travel went into administration in August “with a lot of cash” tied up as collateral for bonds and with “tens of millions tied up with Iata”.

The experience has led STA Travel former finance director and group treasurer Anthony Mercer to believe UK travel firms should switch to trust arrangements to provide consumer financial protection .

Mercer warned a Barclays travel industry ‘state of the nation’ webcast “it’s going to be a tough 12 months” and advised: “Think how to reset your business on a trust account basis, think how to position your business to do that and manage the business to potentially go into administration.”

More :  STA Travel was struggling ‘long before Covid’

He said: “STA Travel was sitting on cash when the company failed. There was still a lot of cash in the group, but it was tied up providing collateral. We had tens of millions tied up with Iata.”

The STA Travel group was privately owned by a Swiss family which put the holding company into administration on August 20.

Mercer explained: “We had elected to use a bond facility and had that collateralised [as} we were able to access it at a better price. [But] it tied up cash.

“We had bilateral agreements with airlines which allowed us, in return for bonding, to defer payments to the airlines after we received customer payments. That put us in a weaker capital position.”

He said the business had suffered “a concertina effect” because of its exposure to Australia at the end of 2019 when bushfires were raging.

Mercer said: “We had a lot of people due to travel who had to change travel patterns or defer trips. On the back of the Australian bush fires we were already in crisis mode. Then we started to hear about a novel virus in China.”

At the start of the pandemic in March, he said: “Our focus was on servicing customers. We didn’t focus on capital at that time. Only at the end of March did we shift to offering refund credit notes.”

The company’s financial projections at the time assumed a return to normality by the start of next year.

Mercer said: “We had us coming back to 65%-70% of the previous year’s sales by the fourth quarter [of 2020]. Our expectation was we would return to normal sales by Q1 2022.”

But he explained: “In 2019, we had a pretty good year, but we restructured and took a loss on 2018 when we also had a marginal loss. That financial position was key when it came to accessing a government Coronavirus Business Interruption Loan Scheme (CBILS) loan.”

In April, STA Travel in Australia was hit with a $14 million (£7.8 million) fine for misleading advertising by the Australian Competition and Consumer Commission (ACCC).

The proceedings dated from March 2019, but Mercer said: “Our liquidity plans did not account for a fine. That put additional pressure on us.”

He said: “Through April we were having weekly calls with airlines which were saying they did not expect to return to 2019 volumes until 2022-23.

“There was this pressure from a lot of deferred payments on the balance sheet. We were aware we didn’t qualify for UK government support.

“We began speaking to external investors to ensure we could continue trading. We were very optimistic. We carried on trading and had a preferred bidder submit a final bid in August.

“Then we received notice the holding company had been placed in administration in Switzerland. We had to go into administration. The failure was beyond our control.”

Mercer said: “We found very few administrators wanted to engage. When you present travel to administrators their view is it is a complex business with very few realisable assets.”

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