INVESTMENT IN TRAVEL


THE TRAVEL industry showed remarkable resilience to come through the pandemic and meet the levels of demand it did in 2023. So there is plenty of cause for optimism in 2024. Alistair Pritchard, Deloitte lead


partner for travel and aviation, said: “There is probably a bit more optimism across the travel sector than across some other sectors given booking levels and consumers’ appetite for travel.” He argued: “There are inevitably


concerns, but 2024 booking levels remain strong. While there are still challenges, inflation has fallen, interest rates have probably peaked, and businesses are more optimistic that we’ve come through the worst. The expectation is that most countries will avoid a recession. It probably means slower growth for the next few years and slightly higher interest rates. But there should nevertheless be some growth.” The strong recovery enabled businesses to pay down pandemic-era debt despite the rise in interest rates. Pritchard noted: “Large businesses


took on significant levels of debt during the pandemic. In most cases, they are now generating significant cashflows and most have either been able to pay down that debt earlier and quicker than they thought or been able to raise equity to pay down some debt. “There is a significant level of private


equity (PE) investment in the sector and, by and large, PE supported businesses through the pandemic. Some of that support was raised through debt and some by additional equity. Most businesses have seen strong trading which puts them in a stronger financial position.” He added: “The CAA took a pragmatic


view during the pandemic. Some businesses had to provide additional security, but the CAA has a risk-based approach to larger Atol holders. That can be a downside in times of certainty. However, the benefit is the CAA has been able to vary its expectations based on risk and a business’s financial position. It has


Investors have confidence in the resilience of the industry but will be keen to see demand remain strong


Travel M&A poised to resume off the back of recovery


been to the benefit of the industry that the CAA has not applied ‘one size fits all’. “Most companies in the sector will say


they had to provide additional security or ring-fence cash. But the counter to that is that we haven’t seen many failures. It helped the resilience of the industry.” Businesses also benefited from being


able to pass on cost increases, Pritchard noted, adding: “We may see some varying cycles develop. I have a few clients who had a strong 2022 and slightly softer 2023 but whose bookings for 2024 look good. I also have some that had a strong 2023, bookings for 2024 are softer, but early bookings for 2025 are strong. “There was clearly a bounce-back


post-pandemic because everybody wanted a holiday, but will we start to see some changing booking patterns? Some people took big holidays in 2023. Might they take a different type of holiday at a different cost level in 2024? It’s a bit early to say, but that is one of the question marks around when mergers and acquisitions [M&A] kick back in.” Financing is more readily available


since the recovery, but also more costly due to the sharp rise in interest rates. Pritchard noted financing for bonds


had become more accessible and pointed out: “A lot of merchant acquirers withheld funds from the sector during the pandemic. We’ve seen a return to a more normal state over the last 12 months with acquirers releasing funds. “That said, there is a potential


challenge with the CAA’s Atol reform. If there is going to be a requirement for trust accounts or ring-fencing cash, a few businesses will need to think about their funding structure. It may require new sources of funding. Some businesses would inevitably be impacted if they need to ring-fence clients’ money, although increasingly businesses are trying to set themselves up so they don’t have significant prepayments through the negotiation of terms with suppliers. “The challenge is dealing with the


Travel Weekly Insight Report 2024 35


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