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May 2017, London
Up, off and away with M&A
As predicted, consolidation will continue to be the name of the travel game in 2017. Sally White reports on the first activity of the year
Only weeks into 2017 and already travel industry M&As are stacking up. All the signs are that this year’s consolidation will be as hectic as in 2016. UK- and Denmark-based metasearch group Momondo is to be added to Priceline’s Kayak family, France’s AccorHotels has gone for Atlanta-based Travel Keys and Airbnb is wooing Luxury Retreats, and that’s just to name just the major movers.
These are all in Europe and the US. Speculation is that Asia will be the next take-over focus, for both inward and outward travel. There is certainly no shortage of money around for mergers - in China Alibaba affiliate Ant Financial seems to have raised a few billion yet again - and travel is an attractively fast-growth if competitive market.
Or could the global OTA giants make a bid for Singapore-based metasearch group Wego, or Australia’s Hotelscombined? Or, perhaps choose slight smaller targets in Korea’s allstay.kr or Japan’s travel.jp? Or maybe the bidders will be local, some commentators naming Baidu in China or Naver in South Korea. Then there is the under-penetrated South American market! There is plenty of scope.
Yet, away from the immediate players it is hard to hear applause, except that these offer some answers to the vexed question of growth. As international consultants Deloittes commented in its 2017 Outlook: “With organic growth hard to come by in a consolidated and mature domestic market, travel trades must realise the benefits of scaling across the travel experience - rather than only trying to growth within their own vertical.”
With organic growth hard to come by in a consolidated and mature domestic market, travel trades must realise the benefits of scaling across the travel experience
Someone who has often questioned the hectic travel M&A scene in the Huffington Post is Jim Pickell, president of HomeExchange, a board member of the US-based Family Travel Association and a frequent guest lecturer. In 'Merger Mania in the Travel Industry and How it Will Affect You', published a few months ago, his comment was: “When it comes to the effects on pricing and benefits, many travellers are worried.”
“Typically,” he avers, “when companies consolidate, they limit completion. As a result, prices go up, benefits decrease and consumers are left with unappealing options.” When it comes to big brands, be it airlines, hotels or OTA’s, travellers may not have noticed the post-merger differences. “.... but travellers who crave variety, authenticity and cultural interaction will probably have to expand their searches!”
However, as he concedes, “companies may believe that consolidation is key to their survival!” Size matters!
“Increased size,” he adds “has many benefits, including economies of scale, by eliminating duplicate functions and centralised procurement. Staffing can be streamlined and processes standardised. It also increases the muscle needed for leverage in negotiations and creates pricing power.”
And companies also point to the innovation that M&A allows them to introduce to cater to shifting consumer demand. It will be interesting to see how the innovation seen at Momondo survives the migration onto Kayak’s platforms.
In his press comment announcing the $550 million agreement with Priceline, Momondo’s CEO, Hugo Burge, a long-standing EyeforTravel speaker, obviously believes its innovation will continue. “This announcement heralds an exciting new chapter for our business and our teams. We look forward to becoming part of the KAYAK family within The Priceline Group, and are very confident that the blend of brands and our different strengths will help us to jointly pursue what we both believe most passionately in – building products users love.”
He added: “Our business is in great shape across the 30-plus markets in which we operate, and we’re looking forward to the opportunity to build on that further.”
Kayak comment from CEO’s Steve Hafner on Priceline’s move to buy the Momondo Group (which runs both Cheapflights, a flight comparison site, and Momondo, a search engine for flights, hotels and car rentals) was: "Momondo and Cheapflights have built great products serving loyal users across Europe. We're looking forward to learning from them and sharing best practices as our brands expand globally.”
So, only time will tell! This can also be said of AccorHotels’ acquisition of yet another sharing economy investment! Having acquired Onefinestay in 2016 and then Squarebreak this year, it has also taken a 30% minority stake in vacation rental company Oasis Collections, and is now negotiating with Travel Keys. While no official figures have been released, there are hints that a deal will be reached in H2 2017. All that AccorHotels is saying on rumours of a merged business, is that decisions on how these four luxury rental services will be put together will be made in the coming months.
Nor does service group Hotelbeds (sold by TUI to investors just last year) as yet have plans to announce on its strategy for Tourico Holidays, except that the acquisition is to be merged with its Bedbank business.
Associated Luxury Hotels (ALH), too, was slow in announcing terms for its latest acquisition - Worldhotels, which has a business focus. Their strategy is also a work in progress of “evolving incremental benefits and synergy to each”. Meanwhile the two companies - ALH’s global portfolio of 250 hotels and the far-flung group that is Worldhotels - will operate as separate divisions.
As to be expected, there has been much more information around on Airbnb’s interest in Luxury Retreats, even before it was official. And that is not just because homes on the platform include a villa on Richard Branson’s Necker Island, which was so recently the Obamas’ retreat.
The strategy here is very clear in contrast, as Canada-based Luxury Retreats’ niche is the luxury segment, which fits alongside Airbnb’s public statements on diversification. The guesstimate put on the price - of around $300-200 million - should be well within Airbnb’s budget. It is thought to have spent little of the $3 billion it has raised so far.
At a post-merger Luxury Retreats there should be nothing to make even the Huffington Post unhappy. People ‘close to the matter’, ie. someone at the companies speaking off the record, are quoted by Bloomberg, as saying that the business will be run by the same team. So, no change there!
Luxury Retreats is profitable so would also (according to industry comment) enhance Airbnb’s accounts and increase its bottom line. Though whether there will ever be an IPO, and need for such documents, is still up in the clouds! There have been no rumours since last November, as the market has simply been too busy with the actual M&A deal stream to think some up!
Don’t miss EyeforTravel Europe 2017 (May 3-4) where Glen Fogel, CEO Priceline and Hugo Burge CEO Momondo will be speaking alongside other big names in travel