The impact of Covid-19 accelerated problems for STA Travel but other factors such as its target market and asset heavy business model also contributed to its downfall.

STA Travel recently announced that it would cease trading on 21 August, resulting in 500 job losses in the UK.

International travel restrictions caused a dramatic halt for all travel plans knocking bookings and revenue for all operators this year. Covid-19 has ravaged the travel and tourism sector and while these impacts decimated company revenue streams, problems at STA Travel also went beyond the impact of this pandemic and it is not the sole reason for the operator’s demise.

Structural problems impacted company profitability

STA Travel launched in the 1970s and was an operator that focused on long haul travel, focusing on students within the ‘gap year’ market.

It is well-known that GenZ and Millennials are the most active traveler types throughout the travel sector but levels of disposable income for these age groups will have likely dropped over the years due to factors such as increased university fees. Alan Bowen, from the Association of Atol Companies declared that STA Travel failed to pivot its model towards the more professional youth traveler – those more within the millennial age category who earn more, spend more and are able to travel more than their younger counterparts.

Another factor that contributed to its downfall is its asset heavy business model. In-store travel agencies generally have high fixed costs including factors such as rent and utilities – an area which OTA’s do not have to struggle with. STA Travel did increase its online presence as consumer attitudes began to shift. However, high operating costs still weighed on profitability as it operated 52 physical stores in the UK.

Themes such as personalization, AI and Big Data are going to drive the future profitability of the travel intermediary sector. On GlobalData’s recent thematic scorecard ranking, it also seemed that STA Travel was ‘lagging’ beyond competitors in terms of investment into some of these themes.

Further casualties are likely

Covid-19 is an unprecedented event affecting the travel industry with all travel operators suffering dramatically from this pandemic. GlobalData’s latest survey reflects that 41% of the global population still plan to reduce their international travel plans in 2020.

It would not be surprising to see more casualties as the effects of Covid-19 continue to ravage consumer confidence and create economic concerns meaning unfortunately, STA Travel is unlikely to be alone in its decision to cease trading in 2020.

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