Travel sector review Q1 2023

The year started with three crucial questions for the travel industry:

• Was 2022’s overseas travel spike a result of pent-up demand as travel restrictions eased?
• Would corporate travel return to pre-pandemic volumes now that hybrid working is the new normal?
• How much would the cost-of-living crisis impact traveller numbers?

Now, continued positive signs from the sector appear to be answering these questions.

Emirates announced record profits and sales for its 2022-2023 financial year, and British Airways owner IAG reported that its group airlines were close to pre-pandemic levels during the first three months of the year. Meanwhile, 78% of travel managers anticipate more business travel in 2023 compared with 2022, according to the Global Business Travel Association.

The airline figures suggest consumers are determined to keep travelling despite pressure on household spending. Indeed, data from our Cut Back Economy report shows that squeezed British consumers would rather cut back on other areas above travel. 

In terms of M&A, our conversations with the industry reflect this optimism. For example, holiday firms are telling us bookings are up, and business owners are preparing to sell now the post-pandemic travel outlook is clearer. 

Travel M&A Activity in the first quarter of 2023

Announced M&A activity in travel & accommodation quarterly (UK targets)

Deal volumes and value

There was a healthy level of UK deal activity within the UK travel sector in Q1 2023, amounting to ten deals.

Total deal value (including only those deals where this information was publicly shared) stood at £273 million.

Private equity (PE) vs trade sales

Trade sales dominated deal activity in Q1, accounting for eight out of ten deals. This ratio is consistent with patterns over the past five years, except for Q3 2021 and Q3 2018, when PE activity was exceptionally high compared to trade. We anticipate more PE activity towards the end of the year, when there's more visibility on consumer spending.

PE travel and accommodation deals in Q1 2023

Cultural fit drives Holidaysplease acquisition

In March 2023, Travel Counsellors acquired online travel specialist Holidaysplease. Both firms use home-based travel advisors to craft holidays for their clients. The deal is Travel Counsellors’ first acquisition in its almost 30-year history and follows record trading in January and February. 

South African firm extends luxury hotels portfolio

Blantyre Capital Limited and operating partner Fairtree Hotel Investments acquired Crerar Hotel Group’s portfolio of seven luxury hotels. This deal marks Blantyre and Fairtree’s fourth landmark hospitality purchase within the UK since 2021. Fairtree Hotel Investments is a division of South-Africa-based Fairtree Group. We provided buy-side due diligence.

Subsector activity

Cross-border deals

Q1 2023’s four cross-border deals were all foreign entities buying UK assets (rather than UK companies buying overseas). Three of these were in the luxury hotel sector. The other was US-based Homeexchange.com’s acquisition of UK marketplace Love Home Swap.

Overseas buyers target UK luxury travel market

In January, Israeli hotels group Fattal bought The Grand Hotel Brighton from a vehicle controlled by the Weston Family (owners of Fortnum and Mason and ABF). The deal was reported to be worth up to £60 million.

Also in January, Pandox, the Sweden based hotel owner and operator, acquired Queens Hotel, the UK luxury hotel, for a reported £53 million.

Australian firm gains UK foothold in UK luxury travel

In February, Australia-based Flight Centre Travel Group signed an agreement to acquire UK luxury travel brand Scott Dunn for £121 million. The deal gives Flight Centre a foothold in the UK and US luxury travel markets.

Spotlight on hotels: activity is picking up, but there’s work to do

The number of ongoing and completed transactions has increased compared to 2022 levels, with more activity, as hotel owners and operators update their strategies to beat operational and macroeconomic headwinds, including:

• Shifting attitudes to business travel – post-pandemic trips must now demonstrably drive value to be justified in terms of cost and ESG-impact
• Recruitment: the sector is unlikely to quickly resolve workforce issues due to the time it takes to attract, recruit, and retain workers 
• Inflation: rising costs, particularly utilities, are impacting margins – the ability to pass these on to guests depends on demand for the individual hotel offering
• Borrowing costs – hoteliers with borrower money are facing financing events and a corresponding increase in financing costs

These factors impact hotels’ ability to invest in periodic repairs and improve the guest experience. However, this creates an opportunity for sellers to work with buyers that are prepared to realise a hotel’s potential.

For sellers, this requires comprehensive data backed by a clear narrative to facilitate due diligence and preserve value. Many buyers are looking at 2019 financial performance as a comparator to 2022 (with 2020 and 2021 included for completeness). It's now a way to understand the sustainable performance of a hotel and build the forecasts required by lenders and equity investors.

Whether you're considering the market as a seller or a buyer of hotels there are certainly challenges, but these create opportunities for those prepared to take them on.

Looking forward to 2023

2023 started with robust M&A for accommodation and showed the green shoots for deal activity in travel. We anticipate increasing activity as the year progresses, and recently announced deals, such as Hyatt Hotel’s Corporation’s intention to acquire luxury hotel platform Mr & Mrs Smith, show strong investor appetite for UK businesses.