City Insider - FT journalist David Stevenson on the travel industry



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You may have noticed that the financial markets have been experiencing a spot of turbulence in the last few weeks.


There’s been excited talk of emerging market crises and currency runs, making it a less than ideal environment for the likes of Ryanair to report some fairly unappealing numbers – more on that in the second part of this month’s analysis (see travelweekly.co.uk tomorrow).


There are, in fact, some very real and worrying issues lurking around out there, not least that in the US there’s evidence of a weakening of corporate profits growth across the board as the major businesses in the S&P 500 index struggle to improve their margins as competition heats up.


That profits pause might possibly become infected in turn by the contagion emanating from emerging markets and snowball into a big crisis, but I wouldn’t wager very much money on it… or not at this stage at least.


The more likely explanation for the turmoil is that we’re entering a turbulent period called a growth scare, which is a jargon-filled way of saying that equity investors are pausing for breath as they anticipate further advances in the remainder of the year.


The consensus – if you want to believe this slippery creature – among most major investment institutions is still overwhelmingly that equities are a good thing and bonds a bad thing.


That provides an excellent opportunity for excitable talk about new businesses and propositions which is why we’re also mid-way through a glorious era for stockbrokers and banks focused on IPOs.


These initial public offerings are coming thick and fast at the moment and it’s not just the high profile tech giants that are snaffling the money – the travel sector is also getting a look in as well.


Just a few weeks ago private equity-owned Sabre announced over in the US that it was examining an IPO.


I’d expect Sabre’s owners to have a slightly bumpy ride, not least because the business is still consistently losing money at the bottom line, after paying its interest and amortisation bill, and we’re also likely to see a subtle recalibration of growth from its Travelocity business moving forward.


But investors will probably be enthusiastic about buying into what they see as strategic businesses (built around either brands or technology) and, given Sabre’s stranglehold on the GDS space in North America, I think the businesses owners will probably raise vastly more money that the putative $100m placing.


A really big travel pitch is due in the next few months as Saga finally clears the runway for take-off, guided along by the hard-nosed corporate advisers at STJ.


Back in 2013 numbers of £3 billion were being bandied about for this business in valuation terms (currently owned by Acromas) but I think we could see a much bigger number emerge from STJ’s protracted bargaining with the big banks.


A successful listing for Saga could, I suspect, represent a big green light for any other travel business looking to list.


However, I’d also add a small caveat which is that I think the IPO window might start to close towards the end of 2014 as investors begin to fret about where global growth is going to come from next.