The travel and tourism industry has less influence on policymakers than its size and contribution to the economy would suggest because it comprises only a fraction of the market in publicly-listed companies.
That is the view of US investment analyst Steven Kent, head of gaming and hospitality research at Goldman Sachs.
Kent told the World Travel and Tourism Council (WTTC) summit in Las Vegas: “There is enormous interest among investors in hotels, casinos, cruise lines and car rental. The problem investors have is that the sector is a relatively small part of the equity market even though it employs millions of people.”
He pointed out travel and tourism makes up “less than 2%-3%” of the US equivalent of the FTSE 500 list of companies – the Standard & Poor’s 500. Kent said the high profitability of some of the industry’s major companies led them to stay privately-owned.
“This business is so profitable that many companies do not need to go public [to raise funds],” he said. “They can thrive without being part of the public equity market.” However, Kent warned that travel companies considering a public listing in the current climate would encounter investors seeking returns in ‘big bell-ringer numbers’.”
He said: “Investors want returns higher than the cost of capital. The problem [with travel] is the risk. Before [the recession], investors wanted double-digit returns. Now they want high double digit returns – not just 15%-20%. They want big bell-ringer numbers.”
“Lodging, car rental, casinos, cruise are all rated as growth sectors. But investors want to see higher occupancy, higher rates and a focus on the bottom line.”
Martin Clarke, a partner at private equity firm Permira, said: “Travel can be volatile and cyclical, and private equity has a love-hate relationship with the sector. Over the last four to five years the experience for investors has been mixed.
“We start with a higher target return [now] than before the recession – in the high teens.”