Criterion: As the travel sector loses altitude, acquirers fly in for the kill

News.com.au

16-05-2025

Recent sector downgrades highlight consumer concerns about tariffs and cost of living pressures
Webjet Group's depressed valuation has attracted a private equity bidder with a lowball offer
Despite the pressures, the key travel stocks are better placed financially than in previous downturns
Like a rapidly fading post-holiday suntan, the post-pandemic travel boom has been abruptly curtailed.
Tariff and cost-of-living concerns have crimped travel budgets, while there's evidence that haphazard US customs policies are deterring visitors there.
As sure as night follows day – although not necessarily on an overseas flight – acquirers are sniffing out unloved stocks.
This week, private equity group BGH lobbed a non-binding for flight booking portal Webjet Group (ASX:WJL) which demerged from its business-to-business hotel arm Web Travel Group (ASX:WEB) last October.
BGH's offer came after the group built a 10.76% relevant stake in Webjet. On a nostalgic note, that was with the help of 1980s corporate raiders Ariadne Australia and Gary Weiss.
Adding to the intrigue, Helloworld Travel (ASX:HLO) has accrued a surprise 5% Webjet Group stake.
In the meantime, the out-of-sorts Kelsian Group (ASX:KLS) is in the process of selling its legacy Kangaroo Island ferry business and other tourism assets, in favour of focusing on commuter transport.
Losing altitude
The corporate manoeverings come amid earnings downgrades from the key operators.
Early this month, Flight Centre cited 'short term results volatility brought about by uncertain (cyclical) trading conditions, including the recent changes to US trade and entry policies.'
Things were going OK until March, when US 'policy changes' started to impact both corporate and leisure sales.
Corporate Travel Management (ASX:CTD) then said full year revenue was likely to be 4% softer than forecast, with underlying earnings likely to be down $30 million relative to expectations at the half year results.
The company cites 'broad economic and tariff uncertainty in North America and Asiahas led to reductions in client activity resulting in slower growth than expected during what is traditionally the busiest period of the year.'
Helloworld last week trimmed its full year guidance to underlying earnings of $52-56 million, down from the previously indicated $56-62 million.
Helloworld's outbound US bookings are only marginally down, while there's strong demand for premium seats across the board.
Not everyone is sharing the cost-of-living pain, evidently.
Tapering airfares tell the story
According to UBS, as of March domestic airfares had fallen an average 9%, reversing the momentum of 2024.
International fares fell an average 4%, or 11% in the case of Virgin.
At face value, cheaper airfares are positive for demand, but not if folk are unwilling to travel because of geopolitical and economies uncertainties.
The trends suggest that travellers are eschewing long-haul trips, in favour of destinations such as Bali, Fiji, Hawaii and Japan.
This is consistent with cost-of-living pressures as well as reports of chronic overtourism in favourite European spots.
Merger mania
If last year's Webjet bifurcation was aimed at making the businesses easier to take over, it has succeeded in its objective.
While BGH's 80-cents-per-share tilt was at a 40% premium to Webjet's 'undisturbed' share price, the stock has traded above that level.
RBC Capital markets notes Webjet has $100 million of net cash worth 26.7 cents a share – one-third of BGH's offer price of 80 cents per share.
The firm opines that even without a takeover premium, Webjet shares are worth $1.05 to $1.30 a share. With a suitable control premium, the board would start talking turkey at $1.26 to $1.50 a share.
Not even close!
Don't panic, we're not going down
The downturn doesn't mean that that travel stocks should be avoided.
On the contrary, they tend to overreact to both good and bad conditions.
Insofar as Australians are more likely to take a domestic break, the conditions are amenable to local plays such as Experience Co (ASX:EXP), which runs skydiving venues and tree walks.
Experience Co this week reported soggy trading because of soggy weather, but notes an 'opportunity to capitalise on sentiment generated by recent US tariff changes'.
Helloworld benefits from the enduring strength of cruising, with bookings expected to be 40% higher this year.
Like a tired hotel room, there's room for a lick of paint.
As part of a much-needed 'brand refresh', Webjet Group plans to double its ticket turnover to $3.2 billion by 2030, including a push into hotel and package offerings.
The players are more resilient financially than during the 2007 GFC, or pandemic.
In the early days of the plague, Flight Centre executed a $700 million emergency capital raising. Now the company is buying back $200 million of its own shares.
There's no need to assume the brace position - but expect some more turbulence and keep the seat belt buckled just in case.