The Webjet Limited (ASX: WEB) share price has been extremely volatile on Monday.
After trading as much as 6% lower this morning, the online travel agent's shares have recovered to be down just 1% at the time of writing.
What happened?
Investors were quick to hit the sell button this morning after its UK partner, Thomas Cook, revealed that it was on the brink of collapse.
The embattled travel company's future is in doubt after it announced that it needed a further £200 million on top of £900 million already agreed with China's Fosun Tourism Group in order to stay in business. Thomas Cook has until later today to find the funds.
This is bad news for Webjet as it manages the hotel bookings for Thomas Cook's customers visiting Europe.
In light of this, the company has released an update on the impact of Thomas Cook entering liquidation.
According to the release, Webjet will be impacted by a loss of total transaction (TTV) value. Previously, management advised that it expected TTV from Thomas Cook to be in the range of $150 to $200 million in FY 2020.
This is expected to reduce its EBITDA growth this year. An additional $27 million to $33 million of EBITDA was expected in FY 2020, but the impact of Thomas Cook's collapse is expected to reduce this guidance by up to $7 million.
In addition to this, there is unpaid receivables exposure. As of today, Thomas Cook owed Webjet approximately €27 million in outstanding receivables.
Management advised that the impairment of any unpaid receivables will be treated as a one-off expense to the income statement and that there will be no material adverse impact on Webjet's liquidity because any write-off will be absorbed by existing cash reserves. At the end of FY 2019 Webjet had cash reserves of $211.4 million and undrawn facilities.
One positive is that there will be "no impact on the more than 3,000 hotel contracts Webjet acquired from Thomas Cook in August 2016, which are wholly owned by WebBeds and available for sale to all WebBeds customers. The vast majority of these contracts are currently sold at full margin to non-Thomas Cook customers and have been a key driver of the profitable growth of our European business over the last 3 years."
Finally, management advised that there "is no change to the other expected FY20 earnings drivers indicated in the FY19 results announcement and Webjet will be providing FY20 EBITDA guidance at its AGM on 20 November 2019."
It also revealed that excluding Thomas Cook, WebBeds TTV was up 50% over the prior corresponding period during the first 10 weeks of FY 2020.
