On the Beach soars amid customer funds ringfence

Shares of Manchester-based online holiday retailer On the Beach Group plc (OTB) rose 28% on Wednesday after it explained that it is the only listed UK travel business that operates a ringfenced customer trust account in which customer funds are held until the point of travel.

“Therefore the group, unlike the majority of online travel agents, tour operators and airlines, does not rely on cash received for forward bookings to trade,” said On The Beach in a stock exchange statement.

“Monies that have been received for holidays that are cancelled by a closure of airspace can be repaid to customers in cash with limited impact on the group’s working capital.”

Nonetheless, OTB said it is suspending full year guidance until such time that the overall impact of COVID-19 becomes clearer.

OTB also said it will not be declaring an interim dividend in the current financial year to September 30, 2020.

The group’s CEO is forgoing his salary and the remainder of the board have voluntarily agreed to a 20% reduction in salary and fees — and no bonuses are being awarded across the group in the current financial year.

On the Beach Group CEO Simon Cooper said: “The travel industry is prone to shocks: global recessions, natural disasters, terrorist attacks, and major airline failures to name a few.

“A closure of airspace was deemed inconceivable during contingency planning for a no-deal Brexit, but we now find ourselves in a position where airspace may be closed for a number of months due to the spread of COVID-19, and the travel industry needs to brace itself for a potentially prolonged period of significantly reduced, or even zero revenue.

“On the Beach was created with an asset light model to ensure its survival in the inconceivable market conditions in which we now find ourselves.

“Unlike the majority of larger tour operators, online travel agents and airlines, all OTB customer funds are held in a ring-fenced trust account so that if the scenario above prevailed and all forward bookings were to seek a refund of their prepaid holiday monies, in the main this could be facilitated without impacting group cash.

“This is not the case across the industry where customer funds are often held on balance sheet and if refunds were requested en masse, the funds would not be available.

“Against the backdrop of the impossible market conditions in which we find ourselves, the resilience of On the Beach’s asset-light and flexible business model becomes clear.

“The benefits of using a trust account structure (as opposed to the use of customer funds for working capital), become obvious, for consumer protection, for the financial stability of the business, and ultimately for the protection of the taxpayer.

“It would appear obvious that, as an industry, we need to reflect on financial protection and on how we can make our industry robust enough to withstand future shocks.

“In the days leading up to the closure of airspace, we were able to put a detailed plan in place to ensure that we are best placed to deliver operational and customer service excellence throughout this difficult time. 

“As a technology company, we are also well placed to facilitate remote working for all of our staff.

“I am hugely proud of the efforts of everyone at OTB and would like to praise the dedication of my colleagues who have been working around the clock to provide the very best level of support for our customers.

“Whilst the coming months will continue to present a huge challenge, I look forward to the multitude of opportunities which lie ahead.”

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Mark McSherry
Dalriada Media LLC sites are edited by veteran news journalist Mark McSherry, a former staff editor and reporter with Reuters, Bloomberg and major newspapers including the South China Morning Post, London's Sunday Times and The Scotsman. McSherry's journalism has also appeared in The Washington Post, The Guardian, The Independent, The New York Times, London's Evening Standard and Forbes. McSherry is also a professor of journalism and communication arts in universities and colleges in New York City. Scottish-born McSherry has an MBA from the University of Edinburgh and a Certificate in Global Affairs from New York University.