Is travel & tourism set to take off?

Viktor Lundvall
17 September 2010

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The travel and tourism sector has been hit hard by the financial crisis, with reports of airlines on the brink of collapse and stranded passengers following the bankruptcy of travel agencies. Despite this, 2010 has seen a resurgence in private equity interest in the sector. Viktor Lundvall investigates.

Airlines and travel agents have suffered heavily during the financial crisis, as tourists and businesses cut down on holiday and travel expenditure. Headlines at the time were dominated by companies in the sector getting into financial difficulty, which was only made worse by the ash clouds of Iceland. It is therefore unsurprising that the number of private equity-backed investments in the sector nosedived, especially in 2009.

unquote" research shows that 27 deals were recorded in the sector in 2007, at a value of €2.67bn. This would prove to be the peak of interest in this sector, with total investment dropping to €307m the following year. Last year was even tougher, with not one private-equity backed investment for the first three quarters.

However, since then, interest in the travel and tourism sector has picked up, with total value in 2010 so far amounting to €753m. This is more than double that of 2008 and a ten-fold increase compared to 2009.

Online travel agents in particular seem to have been a popular business type in 2010, with buyouts across Europe making up the bulk of recorded activity. At the end of July, Permira announced the €250m+ acquisition of Spanish online travel agent eDreams from TA Associates. The vendor reported a lot of interest was received from potential buyers. Earlier that month, Segulah completed a secondary buyout of eTRAVELi from Norvestor. AXA Private Equity has also shown an interest, with its recent acquisition of Go Voyages.

The consensus among investors was that the sector offers many opportunities for consolidation in the market. Online travel agents that offer flights, hotels and rental cars allow for more hassle-free planning and the possibility of discounts, making them attractive to customers. Additionally, with the feeling that the financial crisis has not been as deep or prolonged as initially feared, people may decide that they can now afford a holiday.

An increasing number of customers are turning to online travel agents, looking for the ability to book full package holidays. This has attracted the private equity industry looking to capitalise on the growing market. Although still not clear of turbulence, private equity firms seem to be confident once again in this high flying sector.