This is what successful travel businesses look like
James Lever of Arrowpoint Advisory Partners explains why the likes of Destinology, Iglu, JacTravel and Fleetway became such valuable companies achieving real scale and profitable growth
The internet-powered revolution in the travel industry has created many new players - but only a few have achieved real scale and profitable growth. Here are some hallmark characteristics of those who have.
These are not just observations. We have been involved with many of the key transactions in the UK travel sector over the past few years - from Iglu to Scott Dunn to Travel Jigsaw - advising the founders and management teams to achieve their next transformational deal.
The tech platform really matters
A successful growth company in the travel sector is often built on a strong technology platform. At the front end, the consumer interface has to be slick and effective across multiple devices. This really matters.The way in which people buy their holidays - and the time that they take in making their decision - continues to change. A Euromonitor survey reckons that by 2017 more than 30% of online travel bookings by value will be made on mobile devices.
The platform also needs to operate seamlessly with the company's supplier base. A quality technology infrastructure enables the sales team to price products in real time and sell them at good margins - and margin maintenance is an absolute prerequisite in the travel trade.
Some of the most exciting businesses in the travel industry develop some or all of their infrastructure in-house because it provides them with a clear point of difference. Destinology, who we advised on its sale to Saga, was another good example of this. Its technology platform had been created, built and managed in-house.
Be serious about your specialism
These companies are serious specialists in their niches. Call an operator such as Iglu to talk about cruise or ski holidays and you know within seconds that their team know what exactly they are talking about. That knowledge enables them to add real value to the customer and build strong relationships and loyalty.
Invest in distribution
They invest in their distribution and in their supplier relationships. Fleetway had developed a highly disruptive model that provided hotels with the capability to manage supply and enhance yield throughout seasonal periods. Not only does it have exceptionally close relationships with the hotel owners, it has built highly effective distribution channels through outlets such as TravelZoo and Secret Escapes. The company is able to achieve excellent deals for its customers while preserving its own margins
They have international growth potential. This is an industry where scale really matters. Take JacTravel, which significantly expanded its global coverage while being backed by Bowmark Capital between 2007 to 2014. That expansion is set to continue with Vitruvian Partners - witness its acquisition of TotalStay Group earlier this year. The enlarged group now boats turnover in excess of £360m and direct contractual relationships with 14,000 independent and chain hotel partners in 800 cities around the world.
And they are disruptive. Destinology challenged the prevailing industry orthodoxy about luxury travel; it demonstrated that with good technology and specialist knowledge at the end of the telephone, a pure digitally marketed business - which never produced a brochure - could sell big-ticket luxury holidays.
So, a technology platform that can support growth and enhance margins rather than just execute current business. A distinct, scalable niche that can't be easily replicated by consumers doing it themselves - provide better value, security and service than going DIY. And the usual requirements of a growth business - a strong management team, and revenues and profits rising steadily. If that sounds like your business, you are in a strong position to ride the travel revolution - which shows no sign of letting up.