In a move that is being described as “disappointing” and “hurtful,” Ensemble Travel Group has made the “difficult decision” to postpone the second half of its annual patronage distributions until it has secure funding.
David Harris, Chief Executive Officer of Ensemble, shared the news in a letter sent to shareholders on Thursday (May 21st) as a follow-up to a call that took place earlier.
“While we hope to be in a better position to distribute these patronages in the coming months, we must also not put ourselves in a position that could jeopardize our viability and ability to continue operating,” Harris wrote in the letter, which was sent to PAX by various Ensemble members.
The first portion of Ensemble’s 2019 patronage distributions was distributed in April according to schedule.
Members all have stock in Ensemble’s profit sharing and the second half of the payout was expected to arrive in May.
“And, while we want nothing more than to be in a position to distribute the second half, there are numerous realities that impact that decision,” Harris wrote.
Harris pointed out that Ensemble, for example, is still waiting on relief funding from the government.
“We had hoped that federal support would be more quickly arranged and forthcoming,” Harris wrote. “However, despite numerous positive communications with banks, accountants and government, such is not the case at this time, though we continue to aggressively pursue all available options.”
The member-owned, member-run organization is also, for the first time, expecting to operate at a loss with 0.00 payout for its members for 2020.
Member sales are 0.00 “or even negative,” Harris pointed out, and most suppliers have withdrawn from Ensemble’s marketing programs “representing millions in lost revenue,” he said.
Since March 1st, Ensemble’s projected income for 2020 has diminished by over $17 million USD, wrote Harris.
Furthermore, within the first 30 days of the onset of COVID-19, Ensemble furloughed staff and implemented salary reductions.
These actions resulted in a reduction of almost 40 per cent in operating expenses, Harris stated, noting that further reductions are possible.
“While we have and will continue to do everything possible to manage the situation as best we can, there are many circumstances beyond our control,” he wrote.
“This derails everything”
One travel agency owner and Ensemble member reached out to PAX, expressing his shock and frustration over the decision.
“I've been banking on this revenue as we have nothing else,” the business owner, who asked to remain anonymous, told PAX.
PAX is respecting the agency owner’s request for anonymity to protect the individual’s business relationships. For the purpose of this article, he will be referred to as “John.”
John explained how members were led to believe that the bonus was, in fact, coming.
“We’ve all been expecting it,” he told PAX, noting that the payout helped shape his business plan for the next few months, from keeping employees on the payroll to managing bills.
With just over a week left in May, the announcement to postpone patronage distributions arrived on short notice, John said.
“This derails everything at the last minute,” he said, speculating that “hundreds” of others are in the same boat.
PAX reached out to Ensemble for comment and was issued the following statement on behalf of David Harris:
“While Ensemble did distribute the first half of 2019 patronages in April, I did share the difficult decision that I recently recommended to the board that we postpone the second half of patronage distributions. That decision was based primarily on the fact that while we are still awaiting confirmation on receiving additional relief funding and have to make decisions based on what we know today,” the statement reads. “These are unprecedented times for all of us and many of these circumstances are simply beyond anyone’s control. As I stated on the call yesterday and continue to reiterate, it is my genuine and dedicated focus to distribute the patronage as soon as we are able as it is our highest priority. And as I also said, I truly believe that there has never been a better or more important time to be a travel advisor and that when we do emerge from this crisis that we will be stronger as a company and as an industry.”
In his letter to shareholders, Harris wrote that Ensemble will be addressing 2020 member and marketing subscription charges over the next few weeks.
He also pointed out that, legally, Ensemble has been advised that making a patronage payment under the current circumstances could “be regarded as a preference to equity holders over general trade creditors and should therefore be avoided.”
He wrote that Ensemble has “every intention to distribute the patronage as soon as circumstances permit,” citing a deadline of September 15th after which “other options” could be available depending on the situation.
As a travel professional who has been an Ensemble member for more than two years, John recognized that postponing the patronage distributions was likely a “difficult decision.”
“When the industry gets going again, we’ll all be better off,” he said.
However: “I’m fighting for my business too,” he said, adding that he feels “sideswiped” by the motion.
For John, the payout represented “a glimmer of hope” at a time when morale, business, and cash flow is at an all-time low.
The move impacts John on a personal level, too, and he said it raises other questions.
“You feel like you can weather any storm when you have strong partners,” he told PAX. “Why are they cutting expenses by 40 per cent when I’ve had to cut mine by 80 per cent knowing there would be no revenue?”
A bad dream
In his letter, Harris stated that “nobody really knows for sure” when travel will return to normal levels, citing that predictions range from a 25-50 per cent return of business by the end of 2020 going up to 75 per cent for 2021.
“Hopefully to 100 per cent of pre-COVID levels by 2022,” he wrote.
Harris wrote that he wished this was “a bad dream and that the current situation was not real," noting that he is just as "dismayed and disappointed as you" in having to share the news.
“I truly hope that my concerns about when travel will rebound will be proven wrong and that recovery will be sooner than anticipated with COVID as a distant memory. But hope is not a strategy nor is it realistic given what we know today,” wrote Harris.
The CEO noted that Ensemble’s business model “will require some refinements in the near future.”
“However, fundamentally speaking, I know it will survive and that with the changes and adjustments we are already making, it will provide our members with the programs and services to assist them with being successful in the future. First, we must get through these challenges, and together, I know we will,” he stated.
Furthermore, Harris said he was equally determined to "push forward and look towards a better future."
"I know I speak for the entire Ensemble team in saying that we are committed to succeed and with your support have every confidence in our ability to do so," he concluded. "We won’t let you down."
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