Can a travel firm absorb losses for nine months?

BANGKOK, 19 August 2020: The crucial question facing tour operators as they battle the financial fall-out from Covid-19 is to what extent do they accept the losses, explains Diethelm Travel’s CEO Stephen Roamer.

He heads one of Thailand’s oldest travel firms, a pioneer of Thai tourism that now faces, along with hundreds of other travel firms around the region, an unprecedented financial crisis.

Commenting on financial challenges, Roamer questions: “to what extent does it make sense to forward losses to be compensated with future profits?”

“It’s an individual question for each company to answer. Everyone calculates the ratio of risk, future profit and losses and comes to their own conclusions,” he explains. 

In an outspoken assessment, Roamer says: “I believe it does not make sense for any company to accumulate losses which cannot be compensated within a reasonable time which I consider to be three years at the longest.”

He even shares a simple calculation to help tour operators reach a conclusion on whether it makes sense to live with losses.

“The calculation is rather easy,” he claims. “If you calculate a net profit of a trading average of 1.5 % of the turnover and the losses which accumulate in ratio with the compensation in a maximum of three years you arrive at between six to nine months depending on the country.”

Based on the calculation or “Roamer’s rule” travel companies could no longer justify absorbing losses after six to nine months? They will not recover the losses after three subsequent years of annual profit.

Travel firms have already chalked up five months of losses as of August. If they are forced to continue absorbing losses for another three months, they could reach the point when battling on against the odds becomes self-destructive, an act of corporate suicide. They will have no other option but to close shop.

“The question is not about cash liquidity; it is rather the commercial aspect. Companies are not made to subsidise economic failures. They can take over a calculatable risk, but beyond that, it becomes a sociopolitical issue,” he notes.

“Opening the borders openings is one thing, but a clear outlook and timeline must be given by the executive powers of a country,” Roamer concludes.

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