TRAVEL WEEKLY BUSINESS
ELMAN WALL TRAVEL DIRECTORS’ SUMMIT: Investor Johnson backs travel. By IAN TAYLOR
LUKE JOHNSON: TRAVEL SECTOR IS SEEN AS VOLATILE, BUT MANY FIRMS ARE LOOKING AT GOOD RETURNS
Investor Luke Johnson, owner of
Cruise.co.uk and Neilson Active Holidays, described travel as “overlooked” but full of opportunities last week. Speaking at the Elman Wall
Travel Directors’ Summit in London, Johnson said: “The travel industry as a whole is not particularly profitable. Generally, the operating margins are lower than in restaurants, pubs or cafes where you see a 15%-20% operating profit. It is competitive and it’s particularly cyclical. “Travel is overlooked by many people in private equity; it’s seen as too volatile and fragmented. “But many [travel] companies
are looking at good growth and good returns.” He added: “We have a reviving economy and, as incomes recover, people spend more on holidays.” Johnson, chairman of private equity firm Risk Capital Partners, bought majority stakes in Neilson and
Cruise.co.uk last year. He said: “
Cruise.co.uk is online,
as “quite hands-on”, saying: “We found a new finance director and new marketing director for
Cruise.co.uk, and appointed a new finance director and new executive chairman at Neilson. “You have to trust the people in
charge. We challenge them – they have to explain – but you can’t micro-manage. If you do, relations break down.” He added: “We invested in IT and
Luke Johnson: ‘As incomes recover, people spend more’
“You have to trust the people in charge – you can’t micro-manage”
which is a growth area, and cruise is a growth area. Neilson is active holidays, which is a growth area. They are both doing OK.” Johnson described Risk Capital
accounting systems at Neilson, and we invested in two beach clubs so we’re growing the most profitable bit of the business.”
Johnson described Neilson as “independent of Thomas Cook – it’s not tied to their airline and not overly tied to their agents, though we have cordial relations with Cook”. He said: “A full separation only happened recently. [But] Neilson maintained a separate culture.”
Of
Cruise.co.uk, he said: “Cruise is
a growing market. The cruise lines are investing hundreds of millions in new ships and want to fill them.”
RISK CAPITAL BOSS READY TO INVEST
Risk Capital chairman Luke Johnson suggested he is ready to make more investments in travel. Asked whether he
would look at fresh opportunities in the sector, Johnson told the Elman Wall Travel Directors’ Summit: “Why do you think I’m here?” He said: “Travel is a tough business and very competitive. You have all sorts of things over which you have no control. But it’s one of the biggest industries in the world and will continue to grow.” Yet he insisted: “If
you’re in travel, you should know a bit about travel. If you are in any business – or on a board – you should know something about that business. All the people on boards I’m involved with do.”
THERE ARE PROS AND CONS TO TUI TRAVEL’S PROPOSED MERGER WITH TUI AG, SAYSDAVID STEVENSON CITY INSIDER
If the Tui Travel/Tui AG merger goes ahead it will be worth £5.2 billion. Tui Travel shareholders will receive 0.399 new Tui AG shares for each share, equivalent to 46% of the combined group. Tui AG will hold 54%. The new company will be listed on the London Stock Exchange, with a secondary quotation on Germany’s market.
The small challenge is that although Alexei Mordashov – the Russian billionaire who is Tui AG’s largest shareholder with a 25% stake – is behind the deal, I don’t detect much enthusiasm for it.
Management talk about the
synergies on offer, which could amount to €80 million a year. The Financial Times reports a hidden discount in the offer: apparently, Tui AG shares are worth 20% more than their market price, currently €11.10. And as a further sweetener, investors in Tui Travel, whose shares are worth £3.70 each, will get a 20.5p dividend. But the investors I talk to
aren’t quite convinced. Tui AG has traditionally had a more volatile share-trading history and its profit and loss record is fairly volatile. In effect, the UK shareholders are
being asked to trade certainty for uncertainty. Also, cross-border mergers don’t
have a terrific record. Anyone who has read about oil giant Royal Dutch Shell would know how rapidly these mergers can degenerate into bureaucratic nightmares. Eventually one nationality ends up running the show and my money would be on the Germans being the dominant partner. That may or may not be desirable. My sense is that investors will take a great deal of convincing, but the merger will probably sneak through.
16 October 2014 —
travelweekly.co.uk • 77
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