Finance chiefs at travel companies are struggling to plan ahead despite a recent pickup in bookings, as the coronavirus continues to spread and a vaccine is still months, if not years, away.
“We’re basically prevented from saying the word ‘forecast’ right now because whatever we forecast…it’s wrong,” said Shannon Okinaka, chief financial officer at Hawaiian Airlines. “So we’ve started to use the word ‘planning scenarios’ or ‘planning assumptions.’”
The pandemic and local quarantine requirements have changed the airline’s outlook. Hawaiian expects its operations to be around 25% smaller next summer compared with 2019, Ms. Okinaka said. The company booked a loss of $106.9 million in its latest quarter, compared with a profit of $57.83 million in the prior-year period. Hawaiian’s finance team now focuses more on booking levels, the use of travel vouchers and refunds—metrics it paid less attention to before the pandemic when it focused on its revenue, Ms. Okinaka said.
Most of the 17 S&P 500 companies in the leisure, arts and hospitality space have withdrawn or lowered their financial guidance due to the pandemic as of Sept. 15, according to Dow Jones Newswires, indicating a lack of visibility into what the future might hold.
Widespread lockdown orders and travel restrictions have resulted in cancellations and a drop in new bookings at leisure businesses. Travel could see a partial recovery in the U.S. next year, depending on when a vaccine might arrive, but a complete rebound may have to wait until 2023 as the nation recovers from the recession, said Adam Sacks, president of the consulting firm Tourism Economics.
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Travel companies have raised billions of dollars in emergency funds, retired aircraft, shut hotels and cut thousands of jobs in an effort to survive, as some have generated little or no revenue.
CFOs at these companies say they are updating their models more frequently to respond to fluctuating customer demand and work with various scenarios to reflect the uncertainty surrounding the industry. They track cash flows on a regular, oftentimes weekly, basis, said Anthony Jackson, a principal at Deloitte, the professional services-firm.
Mr. Jackson said he advises companies to assess the effect of economic metrics such as gross domestic product on their revenue instead of relying on historical data. Historical performance “might not be a very reliable indicator as to what your future performance is going to look like,” Mr. Jackson said.
Marriott International Inc., the biggest hotel operator in the world, has moved to tracking its cash flows daily as it looks to reduce its cash burn, finance chief Leeny Oberg said. The company, which runs about 5,500 hotels in North America, saw occupancy rates drop 57.4 percentage points for the three months ended June 30. Marriott in August expected an average corporate cash burn of about $45 million a month. The company booked a loss of $234 million in the latest quarter, its largest core operating loss on record.
“When I think of a CFO’s role, in many cases it’s about a balance of the short-, the medium- and the long-term needs of the business,” Ms. Oberg said. “In this case, the pandemic really requires that you should just focus a bit more toward the shorter term and also a really strong focus on cash flow.”
Hawaiian Airlines planes sat on the runway at Daniel K. Inouye International Airport in Honolulu in April. The airline expects its operations to be about 25% smaller next summer compared with 2019. Photo: marco garcia/Reuters
Bookings by leisure travelers partly recovered as states began relaxing stay-at-home rules, but corporate travel, an important part of Marriott’s business, remains depressed as companies continue to operate remotely.
To gauge demand, the company’s finance team tracks booking and cancellation trends by market, length of stay and time, Ms. Oberg said. Before the pandemic, Marriott focused more on monthly trends and expectations further out to forecast demand, as opposed to daily data.
Cruise operator Carnival Corp. has simplified its models for financial forecasts in the face of so much uncertainty. Finance chief David Bernstein and his team used to track roughly 65,000 price points in determining forecasts but now focus on just 12. “It’s not worth it to go in that level of detail,” Mr. Bernstein said. “You need to be flexible.”
Carnival used to plan its itineraries about two years ahead of sailings, Mr. Bernstein said. The company in recent months had to reschedule trips on the go because of cross-border restrictions and other disruptions, such as delays in ship deliveries. It reported a loss of more than $4 billion for the quarter ended May 31 and expects to burn about $650 million a month in the second half of the year.
At Cedar Fair LP, the theme-park operator, decision-making now involves more analytical thinking, CFO Brian Witherow said. “In Covid terms, a week is like six months, and a month is like a year,” Mr. Witherow said. “Things just change so rapidly.”
One tool that has helped him was a recent survey conducted in the company’s parks, Mr. Witherow said. He used the results to calculate metrics such as net promoter score, used to gauge the likelihood of guests recommending Cedar Fair parks to others, he said.
Despite all the changes to their forecasting, some finance chiefs still rely on their instincts. “I’ve got a good gut feel,” said Carnival’s Mr. Bernstein, who has been CFO since 2007.