Could addiction to debt come back to haunt some online travel companies?

Online travel corporations are attempting to lessen the financial blow of the COVID-19 coronavirus pandemic by resorting to a host of cost-cutting measures such as lowering executive pay, implementing hiring freezes and reducing discretionary spending.

Could past addictions to corporate debt help explain these decisions?

According to a recent report from the Organization for Economic Cooperation and Development, outstanding stock of non-financial corporate bonds reached a record $13.5 trillion at the end of 2019.

For years, corporations took advantage of historically low interest rates and relied on taking out debt in order to invest in new projects and propel growth.

After all, the cost to borrow money was essentially nothing and the economy was roaring.

Now that the world is in a likely recession, that previous reliance on debt could come back to haunt some companies.

So, what does that mean for online travel?

If revenue drops due to COVID-19, online travel companies will be less likely to make debt payments. These companies will find it more challenging to survive economic obstacles and they will have some tough decisions.

In other words, debt intensifies the economic devastation.

With this in mind, we examined the most recent financial filings from online travel companies to review their current debt and loan situations before the crisis started. The findings also include the latest cash and cash equivalents reporting to see how much liquidity they have.

Expedia Group

Excluding maturities, Expedia Group’s long-term debt grew from $3.71 billion in 2018 to $4.18 billion in 2019.

At the end of 2019, the Seattle-based online travel agency had a $2 billion unsecured revolving credit facility that “was essentially untapped.”

On March 18, days after withdrawing its 2020 guidance, Expedia Group borrowed $1.9 billion under its credit agreement.

According to its Form 8-K filed to the SEC, the loan was “was undertaken as a precautionary measure to provide increased liquidity and preserve financial flexibility in light of current disruption and uncertainty resulting from the COVID-19 outbreak. 

“The proceeds from the Revolving Loan will be available to be used for general corporate purposes, including working capital.”

In addition to this new loan, Expedia Group’s current maturities include $750 million in senior notes that are due in August.

Cash and cash equivalents increased from $2.4 billion in 2018 to $3.3 billion in 2019.

Despegar

In 2019, Despegar reported $2 million related to bad debt charges from exposure to Avianca Brasil, an airline that ceased operations in June.

The Buenos Aires, Argentina-based OTA is in better shape this year due to a drop in loans and other financial liabilities from $31 million in 2018 to $19 million in 2019.

However, cash and cash equivalents fell from $346 million at the end of 2018 to $309 million at the end of 2019.

MakeMyTrip

MakeMyTrip went from reporting $474,000 in loans and borrowing in March 2019 to reporting $23 million in loans and borrowing by June 2019.

India’s largest OTA slightly decreased its loans liabilities to $22.7 million by December 2019. 

Cash and cash equivalents dropped from $177 million to $163 million during that same period.

TUI Group

Net debt of continuing operations for TUI Group increased from €3.2 billion to more than €5 billion as of December 2019.

The Hanover, Germany-based company attributed the increase to its first-time application of accounting standard IFRS 16.

In the last quarter of 2019, cash and cash equivalents fell from €1.74 billion to €866 million.

Booking Holdings

Long-term debt for Booking Holdings decreased from $8.65 billion in 2018 to $7.64 billion in 2019.

The Norwalk, Connecticut-based OTA also reported $988 million in convertible debt at the end of 2019.

Cash and cash equivalents increased from $2.62 billion in 2018 to 6.31 billion in 2019.

Trip.com Group

At the end of 2019, Trip.com Group reported $4.3 billion in short-term debt, $2.8 billion in long-term debt and $2.8 billion in cash and cash equivalents.

However, in the wake of the COVID-19 outbreak, the Shanghai, China-based OTA reportedly wanted to take out an additional $1.2 billion loan.

Sabre

Between 2018 and 2019, Sabre managed to decrease its long-term debt from $3.3 billion to $3.2 billion.

The GDS also reported that cash and cash equivalents fell from $509 million to $436 million.

Amadeus

Net financial debt for Amadeus decreased from €3.074 million at the end of 2018 to €2.758 million at the end of 2019. Free cash flow increased by 5.7% during that period.

Uber

Uber decreased its long-term debt from $6.8 billion in 2018 to $5.7 billion in 2019, while simultaneously increasing its cash and cash equivalents from $6.4 billion to $10.8 billion.

Hostelworld Group

Hostelworld Group had no borrowings on the books at the end of 2019. Cash and cash equivalents at the end of the year reached €19.4 million.

As part of its shareholder purchase agreement, the Dublin, Ireland-based company maintains a $500,000 loan facility option that is available to its subsidiary Goki.

Tripadvisor

As of December 2019, Tripadvisor had $319 million in cash and cash equivalents with no outstanding debt. This absence of debt should provide Tripadvisor with additional flexibility to weather the current economic environment.