Alfa Star could have avoided bankruptcy

The troubles of the Alfa Star travel agency are another example of a company that has failed to cope with the difficult situation on the travel services market. However, the company, which until recently was among the top tour operators in Poland, did not go bankrupt overnight. The right reaction could have saved it.

At present, we know little - Alfa Star has announced that it has lost its liquidity and that it will not fulfil its obligations under the travel service contracts concluded with its customers. We can only speak of the company's bankruptcy once this has been confirmed by the court, at the request of creditors or the debtor itself, which has not yet happened. Nevertheless, it is a fact that tourists staying abroad have to be brought back home, which may even cost the equivalent of an insurance guarantee, i.e. around PLN 20 million.

Travel agents are typical businesses. As with all commercial entities, tour operators are also influenced by external and internal factors that shape market conditions. Thus, there can be many reasons for a loss of liquidity. However, the most common cause of bankruptcy is wrong management decisions and, more specifically, in crisis situations, reacting too late and failing to take action to introduce restructuring procedures. Troubles and problems with failed investments, with delayed payments, with exchange rate risks are experienced by almost all market players in all industries. Therefore, travel agents, like all other businesses, should also skilfully protect their liquidity and increase their resilience to external cyclical factors.

In the case of Alfa Star, several specific factors contributed to the crisis. The first was the collapse of the tourism industry in the bureau's main destinations - Egypt and Turkey. For reasons beyond the tour operator's control, the main market for its services brought in more than 30 per cent less revenue than in previous years. It started with the crisis and then the Arab Spring in 2011, resulting in a significant decrease in the number of tourists. This year's terrorist attacks in both countries had a negative impact on sales of the offer, to which the company should also react accordingly, adapting to the new crisis situation.
The company's bad situation was also exacerbated by misguided investments. Last year, Alfa Star invested in the charter flight business 4YouAirlines, which clearly did not deliver the expected returns.

Thus, the company's troubles had been dragging on for many years and it is incomprehensible why the company's management did not decide in good time to restructure the company or at least change the adopted operating strategy.

It is also possible to make use of the tools provided by the Bankruptcy and Recovery Act. At the same time, judicial protection increases the chance of regaining financial equilibrium and represents a greater likelihood of fulfilling ongoing contracts with clients. The solution is therefore beneficial for entrepreneurs, but also for the clients of travel agents who are abroad at the time. However, in order for the court to approve the implementation of the resolution procedure, the decision to implement it must be notified in the first phase of the company's crisis and not in its final stage. Adequate prompt and even preventive action is a key factor in the success of the change process.

Current legal provisions help entrepreneurs to restructure, although still in a rather limited way. They make it possible to protect liquidity. Reorganisation proceedings, or composition proceedings or, alternatively, enforcement of the company's income, among others, serve this purpose. Reorganisation proceedings make it possible to improve liquidity and reactivate revenue-generating operations that allow repayment of creditors without degrading the value of the company. From January 2016, in addition, companies will have the opportunity to use the tools provided by the restructuring law.

If an entrepreneur notices unfavourable changes in particular areas of the company's activity, loss of liquidity, he or she will be able to use restructuring tools while under the care of the court. The new restructuring tools are aimed at entrepreneurs both in the segment of small, family-run travel agencies and corporations, i.e. airlines. Entrepreneurs are supported in choosing the most favourable restructuring scenario by qualified restructuring advisors, who design and implement recovery procedures and even sometimes take over the management of the company for the duration of the proceedings. A well-chosen and implemented reorganisation procedure makes it possible to continue operating at the same time, generate a profit and, in some cases, even cut costs or reduce selected activities, so that the company's condition can improve in a short period of time.

The example of Alfa Star and other offices declaring insolvency should not be a prediction of a deep crisis in the tourism industry or a recession of the Polish market. However, I would treat it as a warning for companies that are thriving today. It is worth remembering that knowledge and vigilance can save many entrepreneurs.

The material appeared on the website:

4 September 2015:

" Did Alfa Star have to fail?