More than 1 in 4 hospitality businesses in Scotland at risk of going under

Academics at the University of Edinburgh Business School, in collaboration with London-based credit risk assessment company Wiserfunding, looked at the financial statements of 5,000 Scottish companies in the tourism and hospitality sectors employing 209,000 people and considered their profitability and levels of debt.

Using Wiserfunding’s models and technology to simulate potential stress scenarios, it predicts that a ‘mild stress’ scenario, equivalent to the 2008 crash, would result in more than a quarter (28%) of companies defaulting, costing around 58,520 jobs.

In a more severe situation, such as second lockdown, the level of predicted job losses rose to just under 90,000 - with 43% of companies defaulting.

The study, which was funded by the University’s Data-driven Innovation initiative, part of the Edinburgh and South East Scotland City Region Deal, found that medium and large companies were more at risk of defaulting than small businesses that have lower fixed costs and so could adjust faster to challenging conditions.

“Our results confirm that the current government efforts to support the sector are going in the right direction,” says Dr Galina Andreeva, Senior Lecturer in Management Science at the University of Edinburgh Business School.

“However, we would recommend support tailored to company size to maximise impact. Firms that show the highest level of adaptability should be rewarded and offered additional support to overcome the crisis, in order to increase the chances of success in the deployment of public funds.

“The withdrawal of current borrowing schemes should be carefully planned in order not to create additional shocks to companies with high debt levels.

“Even once the economy starts to reopen, measures will likely be put in place that curtail economic activity to some degree: travel will be less common, businesses will have to space workers and customers further apart, restaurants will be serving fewer customers at a time, and sporting events, concerts, and other activities involving large crowds probably will remain off limits for a long time.

“People and business will need to accept this new status quo and adapt. This is the only way to ensure a faster recovery.”