Comment: Expect more M&A activity in domestic travel

Opportunities close to home as international travel restricted, says George Moss, partner at private equity firm ECI Partners

The Covid-19 pandemic has brought a wide range of disruption to the travel industry: ever-evolving government restrictions on movement, shifting positions surrounding quarantining and disagreements over air corridors has meant international travel has faced severe challenges in 2020.

While the entire travel sector has suffered at the hands of the crisis, not all areas have suffered equally. While the international travel sector has faced endless challenges, the staycation market has been boosted despite the challenges of operating through lockdowns.

Over the last few months, changing government advice regarding international travel – both at home and overseas – has resulted in thousands of travellers having to cancel their holidays, or call them short in a bid to return home before quarantine measures were enforced. Similarly, many consumers are nervous about international travel, out of fear that they will increase their risk of contracting Covid-19 or have to endure more difficult journeys to their destination as a result of operational changes from airports and airlines.

While international travel prospects are uncertain, there are good opportunities for the domestic travel market, both now and in the long term.

Increased investment

While international travel remains restricted, it remains difficult to invest in businesses specialising in overseas travel. When coupled with the fact that the domestic travel market has also remained stable throughout previous recessions, it means domestic travel businesses are expected to be in demand and those which have proven to be resilient through the crisis will likely see higher valuations.

However, that is not to say that all domestic travel will benefit from the surge in investor interest. Those operators that allow people to ‘keep to themselves’ are in prime position to thrive, for example holiday cottages and caravan parks.

Similarly, those companies where customers have felt they have been treated fairly, for example with transparent refund policies, are likely to see enhanced customer loyalty going forwards. Those that struggled to adapt at pace to changing customer demands, might see the opposite.

Constantly-changing government advice has left many companies on the back foot, having to address ever-changing restrictions and significant operational challenges. During lockdown periods, many travel companies have had to expand their customer service offerings to look after customers, addressing valid concerns around whether holidays can go ahead and the applicability of refund policies. Funding this in a period where revenue was impacted has been difficult for many operators and, in some cases, has pushed some domestic businesses to the brink – and some to collapse.

The year ahead

While there will be some short-term disruption from lockdowns as governments look to control the virus, we expect to see domestic travel grow over the coming years. The market was growing steadily ahead of the pandemic, and the behavioural changes that have been brought on by it are likely to bring a long-term boom for the sector as the UK reacquaints itself with the joy of holidaying at home. As a result, we would expect to see increased levels of M&A deal activity in the future.

Despite the challenges it has faced, the domestic travel sector has once again proven to be a resilient sector, and we can expect to see high levels of growth from it in 2021 and beyond.

Now is the time for operators to continue thinking about how they can continue to enhance their customer proposition to meet changing customer needs and keep up with the changing regulations to thrive now, and in the years ahead.

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