The lag in the corporate travel recovery since Covid combined with technology developments and quest for returns on investment are driving consolidation in business travel. Ian Taylor reports
American Express Global Business Travel’s acquisition of rival CWT, announced on March 25, will combine the largest travel management company (TMC) in the UK and Europe with the fourth largest in the UK and European number three.
However, it is a deal made in the US, with New York-based Amex GBT listed on the New York Stock Exchange and CWT, formerly Carlson Wagonlit Travel, based in Minneapolis.
More: Amex GBT to acquire CWT in $570 million deal
Amex GBT chief executive Paul Abbott announced the acquisition declaring it would “create more choice for customers, more opportunities for people and more value for shareholders”.
Two of these outcomes are debatable given the companies are rivals. But the third explains the deal, with the combined business targeting $155 million in savings through ‘synergies’ and Abbott noting CWT would swell the value of Amex GBT’s SME business by about $5 billion.
The larger company continues to trade as Amex GBT despite being renamed Global Business Travel Group Inc (GBT Group) following its merger with Apollo Strategic Growth Capital, a ‘special purpose acquisition company’ (SPAC) in 2021 and then listing in New York in 2022 with a market capitalisation of $5.3 billion.
The Apollo SPAC was set up by US venture capital giant Apollo Global Management, private equity firm Ares, virtual meetings group Zoom, travel tech firm Sabre and investment advisor HG Vora.
The deal brought $335 million in ‘private investment in public equity’ (PIPE), including “sizeable investments” by Sabre and Zoom which see business growth opportunities through investing in Amex GBT. Apollo, Ares and HG Vora simply aimed to grow their investment.
They joined Amex GBT’s existing investors – former owner American Express, private equity firm Certares and Expedia Group. Online travel group Expedia acquired a shareholding when Amex GBT took over its corporate travel arm Egencia in May 2021.
American Express retains a reduced stake among these multiple stakeholders having initially entered a 50/50 joint venture with a Certares-led investment group including the Qatar Investment Authority in 2015.
Growing costs of technology
The establishment of Global Business Travel Group, its subsequent listing and the purchase of CWT were based on expectations of a strong corporate travel recovery and opportunities for global growth, allied to recognition of the ballooning costs of investment in technology to service the market.
Abbott noted the pressures to consolidate the sector and “the investment needed to succeed” when he addressed the UK’s Institute of Travel Management (ITM) conference in May 2022, saying: “It’s essential for any business to invest to compete.
“There will be pressure for consolidation because of the requirement for significant investment in product and technology.”
He rejected the idea of a growing division between new entrants and ‘legacy’ businesses in corporate travel, arguing: “Legacy suggests there are companies with old models and companies with new models.
“Our company was founded in the separation from American Express in 2015, so we’re relatively new, but I would challenge the model of legacy companies and new entrants. There are companies investing in technology and companies not investing. We have close to 1,000 software engineers.”
At the same time, Abbott acknowledged: “I don’t think we’ll return to pre-pandemic levels [of corporate travel].”
He told the ITM: “We’re market leader with revenue of $40 billion in a $1.2 trillion sector. Even if 10% of corporate travel doesn’t come back [post-Covid] it’s still a huge market.”
In fact, Amex GBT’s transactions last year totalled $28 billion and the company reported a net loss of $136 million. That followed losses of $229 million in 2022, $475 million in 2021 and $619 million in 2020, with the group carrying a net debt of $886 million into this year.
A vote of confidence?
Initially, the CWT deal will dilute GBT Group’s value since the company will issue 71.7 million new shares and grant CWT’s shareholders a 13% stake while swallowing CWT’s debt.
That debt was put at $750 million going into 2022, having been halved after CWT spent 24 hours in bankruptcy protection in November 2021 – when the Carlson family which had controlled the company since its creation ceded majority ownership to its creditors.
CWT had sought a ‘pre-pack’ bankruptcy in Texas, with a restructuring plan agreed with shareholders and creditors in advance of the insolvency, after the company defaulted on a payment on a $250-million bond.
Then CWT chief executive Michelle McKinney Frymire, who had taken over in May 2021 to refinance the company and lead it out of the pandemic, hailed the agreement as “a vote of confidence” from creditors. But credit ratings agency Fitch labelled it a “distressed debt exchange”.
Since then, and the end of the pandemic, we have seen nothing short of a boom in international leisure travel and a strong return of visiting friends and relatives (VFR), but a slower recovery in the business travel sector.
The most striking indicator of this comes from leading airlines which continue to report a lag in the corporate travel recovery.
Virgin Atlantic chief executive Shai Weiss, speaking at the UK Business Travel Association conference last month, noted: “We’ve seen a recovery of about 75% in volumes, not revenues, of corporate customers versus 2019. This year it may get to around 80%,” he suggested.
Delta Air Lines, Virgin Atlantic’s transatlantic partner and part owner, noted a similar trend with president and chief executive Ed Bastian reporting “continued improvement in the corporate sector” in January, while noting: “We had a number of laggards [in the sector].”
He suggested: “We’re finally starting to see tech companies traveling again [after] being by far the largest [sector] that had essentially not returned to travel.”
British Airways parent International Airlines Group (IAG) likewise reported in February that “corporate travel continues to return more slowly, in particular in short duration and short haul”. That came after IAG chief executive Luis Gallego suggested last summer that corporate bookings had “plateaued” at up to 40% below 2019 levels.
The Lufthansa Group similarly noted last month that “business travel continues to recover at a slower pace” and chief executive Carsten Spohr suggested last year that: “German corporate travel will remain structurally smaller.”
That would be quite something in what is by far Europe’s biggest economy, with significant repercussions for the corporate market.
So, the ‘value’ in the Amex GBT-CWT deal can be viewed from more than one angle. The acquisition is expected to be finalised in the second half of this year, pending regulatory approval.