City Insider: City festive cheer not shared by all

City Insider - A City perspective on the travel industry from FT journalist David Stevenson

The boom looks to be back in the City and investors are homing in on travel, but continuing financial problems for smaller firms and job losses, particularly among women, could mean 2011 will be tough for some in travel.  

Christmas time in the City is always a deeply revealing experience. This time last year everyone was keeping a very low key and bling was most definitely out of fashion.

This year everything appears very different with conspicuous consumption back on display amid a growing sense of euphoria and optimism.

At one party I even heard a track from the classic Supertramp album, Crisis What Crisis.  Those words seem horribly apt when describing the square mile today.

The big G(lobal) F(inancial) C(risis) – which is not to be confused with Roald Dahl’s BFG – has come and gone, and large corporates are enjoying bumper profits.

More importantly they are sitting on mountains of cash, reserves that are growing bigger by the day. And that cash is being spent/squandered on a wave of corporate merger and acquisiton activity.

At the moment the chief target of this money is anything to do with the capital equipment sector – the picks and shovels guys providing the machinery that’s helping build new roads and factories in the developing world.

The oil services sector is a particular target with a handful of big deals on the cards, many of them featuring huge American outfits like GE.

But that optimism is also beginning to creep over into the consumer space with interest in the retailing sector likely to pick up first, closely followed by activity in travel.

But this rebound is only the first enthusiastic stage of what may turn into a new corporate bubble in 2011 – if you sit in the C Suite world I’d expect lots and lots of offers and approaches in the coming year.

That enthusiasm and ample supply of easy money is even finding its way into other, much neglected, parts of the financial system including IPO activity, with FlyBe a prime example.

I have no doubt this regional carrier is a great business but I was astonished to see it’s shares trading at a healthy premium to its listing price.

What has the world come to when an airline trades at a premium to its most optimistic assessment of assets.

I’d even go so far as to suggest that if you have a premium travel business that can tap into the huge pools of money sitting in the areas surrounding the Principality of London, 2011 may be the year to get that float away.

Nomad’s – corporate advisers – are desperate for business, rates have come down and investor’s are starting to show a renewed interest in travel at the institutional level if the price is right.

The corporate money cash bubble is now starting a new process, leaking downwards into the private equity world – last week I ran into a PE firm that was readying a travel sector specific fund with over $200 million in assets. A tiny amount of money has also started to trickle into the start up sector.

Venture Capitalists seem to be focusing their attentions on the interface between travel, online aggregation of content and product and intuitive, personalised technology.

Step back from this increasingly optimistic picture and you can begin to see why so many forecasters are defying the bears and predicting a rosy 2011 for the global economy.

This optimism also helps explain why interesting niche schemes such as Rocksure are finding an increasingly enthusiastic audience.

This Oxfordshire based company runs fractional ownership schemes for top end villas. These involve lots of CFOs, CEOs and professionals gathering together in a portfolio to buy up high end properties in everywhere from New York through to Croatia.

In the last few weeks this small firm launched not one but two new schemes, including a partnership with Quintessentially Group.
The starting price on these schemes is hardly close to your Tesco price points, with minimum investments ranging between £70,000 and £200,000, yet Rocksure is finding renewed interest from corporate buyers flushed with cash.

But there is of course a very big dark cloud on this bright horizon for 2011 – jobs or the lack of them to be precise.

The corporates may be enjoying the high life but the real drivers of economic growth are smaller companies and business is not so bright for companies employing fewer than 500 employees.

The banks are still not lending enough money to entrepreneurs and margins in the mass affluent service/consumer sector are incredibly tight, buffeted by inflationary pressures from higher energy costs and increased finance expenses.

With margins under pressure, employers are thus reluctant to employ new staff. Mix in a lorry load of redundancies in the state sector and we have a toxic brew which is likely to result in increasing unemployment rates throughout the first part of 2011.

This will, in turn, inevitably keep a lid on consumer spending increases (outside the south east of England).

Yet  there’s one last key factor to watch out for – increased female unemployment rates. Women dominate in the state sector and will bear the brunt of the coming tsunami of redundancies.

Cut mother’s child benefit, increase taxes and eradicate jobs and we may find that 2011 is a nasty year for the chief family decision makers and summer holiday booker.

Except of course if they work at senior level in a corporate.

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