Insight · Governance · Travel industry

Profitable on paper, short of cash: what governance has to do with it

A travel agency can report a profit and still struggle to pay its airline settlement on time. Research from Kenya suggests the way a firm is governed is part of the answer.

The problem directors recognise

Anyone who has worked inside a travel agency knows the pattern. Sales look healthy and the income statement shows a profit, yet the bank balance is under pressure. Corporate and government clients pay late. Settlement dates for airline tickets do not move. The overdraft becomes a permanent source of funding instead of a short-term one.

That is why I find the idea of financial sustainability more useful than profit alone. A sustainable firm can keep enough liquidity, generate cash from operations, meet its obligations when they fall due, service its debt and keep operating over time. Profit is one part of that picture, not all of it.

What the research says so far

Two Kenyan studies are especially useful.

Travel agencies and tour operators in Mombasa. Ochieng and Kising'u (2023) surveyed the chief executives of 29 travel agencies and 86 tour operators in Mombasa County. They looked at four board mechanisms: how often the board meets, how independent it is, how it is composed and how large it is. All four had a positive and significant relationship with firm performance. The design was correlational, so it shows an association, not proof that one causes the other.

Microfinance institutions. A 2014 study in the European Journal of Business and Management took a closer look at sustainability itself. Using data from ten Kenyan microfinance institutions over 2000 to 2011, with return on assets as the measure, it found significant results for board size, board composition, CEO duality (one person as both CEO and chair) and CEO gender. Its recommendations included a moderately sized board, more independence, and separating the CEO and chair roles.

The gap

Between them, these studies cover travel firms and they cover financial sustainability, but not both together. None looks specifically at IATA-registered agents, whose business carries its own pressures: airline settlement, accreditation and financial guarantees, ticketing systems and supplier credit. And none looks at Nairobi, where corporate and government travel is concentrated.

What I am studying

My MBA research examines corporate governance practices and the financial sustainability of IATA-registered travel agents in Nairobi City County. The framework adds a fourth, finance-specific practice to the familiar board measures:

The study is in progress. I will publish the findings here when it is complete.

Five questions directors can ask now

You do not need to wait for the results to act on the principles behind them. These questions apply to any agency board, and to most SMEs that handle customer money.

1. Does the board see a cash-flow forecast that is built around our settlement dates, not only a monthly profit figure?
2. Do we know which corporate and government clients owe us money, how old each balance is, and who is following up?
3. Is there at least one director who can challenge management without a conflict of interest?
4. Does the board meet on a set schedule, with papers sent in advance and decisions minuted and followed up?
5. Who checks the controls over refunds, customer deposits and supplier payments, and when did they last report to the board?

Sources

1. Ochieng, A. O., & Kising'u, T. (2023). Corporate governance mechanisms and performance of travel agencies and tour operators in Mombasa County, Kenya. Strategic Journal of Business & Change Management, 10(3), 551–596. strategicjournals.com
2. Effects of corporate governance on micro finance institutions financial sustainability in Kenya (2014). European Journal of Business and Management, 6(30), 71–81. iiste.org