Travel: Deals to take off
Ryanair recently reported strong travel demand and a traffic rise of 74% at higher fares. However, many travel assets have been locked in for years following the perfect storm of Brexit followed by a global pandemic. Given that bookings also remain buoyant, many owners and investors will shortly be looking to exit – we anticipate deal volumes in the travel sector will significantly ramp up towards the end of 2023 and certainly by early 2024. That said, a healthy amount of caution around travel remains within private equity.
- Tour operators are in demand. Whilst the post-pandemic bookings bounce has faded, tour operators appear somewhat protected from the impact of inflation and cost of living pressures – recent surveys suggest a number of tourists plan to take the same (and in many cases more) holidays than they did in 2022. The macro environment creates favourable conditions for operators as holidaymakers want to make informed travel plans; many being risk adverse given a reduction in disposal income. A trend towards travelling during off-peak seasons can also help operators that are typically subject to high levels of seasonality manage their cashflow better.
- Sustainable travel is now a hugely important factor for many travellers; 90% of respondents from a recent survey (conducted by Expedia) stated they now look for sustainable options when planning a holiday. The impact travel businesses have on the environment is often tricky to quantify, but an important consideration for many customers (and therefore will need to be for potential investors).
- Technology enables personalisation, efficiency and service – exploiting the best software (be it booking systems or artificial intelligence) often enables operators to target customers more easily and enhance the consumer experience. Technology continues to be a key differentiator in the sector and appetite remains for investment and adoption.
There haven’t been many transactions post pandemic, here’s what investors need to look for:
- Destination markets and local expertise
Our recent work on Inside Travel Group highlighted the importance of end market destinations – is demand for these locations growing, and does the business have the local expertise to differentiate against other more generalist providers?
- The fundamentals won’t change
Cash is king and costs will remain high – what is the continued impact on the business? How do they manage this? Where will growth come from?
- Get your pricing right
Consumer surveys suggest that people are less willing to forgo their holidays and prepared to sacrifice other non-discretional spend. They expect prices to rise, not standards to fall. What is the pricing strategy? Can the sales team clearly articulate it? How well is the business managing the customer experience given the squeeze on resources and staff?
Getting and keeping the right people is still a key concern. Management teams will need to be able to present a clear plan of how they are addressing staff shortages now and in the future. What flexible working arrangements are in place? How is talent rewarded? What are the levels of churn in key roles?
Travel deals Armstrong has supported:
Click to read about our recent work with Inside Travel here.
Speak to myself or a member of the team about opportunities in the travel sector.
Jack Hibbs, Engagement ManagerEmail Jack