No other industry is so vulnerable to the vagaries of geo-political upheaval as the Travel Industry. In the last decade some of these have had an almost Armageddon like feel to them – 9/11, Sars, Tsunami, Swine and Bird Flu, Volcanic Ash.
Is this why travel companies, by and large, provide such poor shareholder value?
Take the share price of the Big Two. When the Big Four merged into two the published financial synergies were sizeable – in both cases well in excess of £100 million annually.
In any other industry this would have provided huge shareholder value and a surge in the share price.
This didn’t happen and their share price continues to reflect less than attractive shareholder value today, even factoring in the “credit crunch”.
I think there is more to this than the industry’s exposure to geo-political influences.
All of the detailed benchmarking surveys indicate that the British consumer will continue to travel overseas and on a more frequent basis.
Lower interest rates dictate that once the feel good factor is back and the media hyped “double dip” recession hysteria abates that the public will have more money to spend on travel and holidays.
The travel industry, as reflected most clearly in the cruise sector, is rightly planning ahead for this eventuality.
This is where I believe we have the problem from the shareholder/City perspective.
For the travel industry to expand into this projected increasing marketplace huge amounts of money and investment must be made in the infrastructure and the fixed assets needed to service the increase.
Ships, planes, hotels etc are very expensive items, whether leased or purchased, and the outlay or commitment to acquire them against the back drop of the inherent risks the industry has to deal with is not an attractive proposition to institutional and educated investors.
You can hype up the increased potential marketplace all you like, but serious financial commitment is needed before the returns on investment roll in.
Look at the most recent published accounts of the Big Two and you will note that directors are required to list the inherent risks and uncertainties their groups are exposed to.
Global terrorism, natural disasters, health scares, market dynamics, government intervention, new consumer trends, competition moves, currency fluctuation, reliance on computer systems are but a few.
The initial mutterings from the new coalition government are that all is hunky dory in the world of overseas tourism, and that they want to encourage incoming tours and stay-at-home holidays. I doubt this is going to add to shareholder value either.
Despite all this, the travel industry remains unbelievably resilient. It needs to be. Perhaps though we should all invest in a safer more predictable industry. Banking maybe?
Chris Photi is a partner at White Hart Associates