Digital opportunities in travel: key takeaways for Private Equity 

Today’s travel landscape boasts diverse accommodation options, from innovative platforms like AirBnB and HomeExchange to traditional hotel chains, providing modern travellers unparalleled choice and flexibility. The global online travel accommodation market is valued at $478bn which naturally attracts competition and so creates the need to evolve traditional models or invent new ones. With a backlog of travel assets coming to market after extended hold periods since 2020, our private equity clients are looking for ways to appropriately value these assets based on current performance but also future growth. 

In this article, we’ll look at the various travel models in the space and how digital is shaping the private equity investment thesis. 

Evolving Travel Models

Private Equity and Travel Sector

Recent activity including Vitruvian’s investment in Civitatis, Mobeus’ investment in Distant Journeys or Mayfair’s investment in TrustedHouseSitters shows travel is high on many PE investors’ agenda. However, even within the various models, recent performance has varied. This means it is important to assess the specific capabilities of a business, and most recent performance versus market / peers, to identify the current right to win as well as the future levers for growth. 

Considerations for Investors

Digital transformation has reshaped the travel industry so it is crucial for investors to understand the opportunities when assessing the attractiveness of an asset and its growth potential in the holding period. We discuss five essential strategies for Private Equity firms to capitalise on investment and value-creation opportunities within the evolving landscape.

1. Further digitalise to drive operational efficiencies:

The travel industry presents opportunities for buy-and-build consolidation strategies, allowing private equity firms to maximise economies of scale. By acquiring and integrating travel companies, investors can streamline operations, reduce costs, maximise economies of scale, or offer a broader service offering creating opportunities to win a greater share of wallet.  

With scale comes the opportunity to invest in technology to improve both the customer experience and the operational process; from personalised recommendations and improved CRM efficiency to automated property management and harnessing predictive analytics. The key consideration for incoming investors is understanding if existing investments are appropriately implemented with a clear roadmap and plans for driving adoption. If plans are less developed, then building a picture of future team and tooling is a key activity to ensure there are no surprises during a hold period. 

Virgin Hotel’s “Lucy” digital concierge service showcases the potential of technology to enable personalisation through pre-arrival check in, contactless room entry, tailored room service, and the ability to change room lighting. Virgin integrates all of this within its Property Management System (PMS) to ensure each of its hotels are efficiently managed and provides the best guest experience.  

2. Optimise Customer Acquisition for Online Scaling:  

As 80% of travel bookings are made online, the customer acquisition journey is often a key driver of growth and efficiency. The strategy chosen to acquire leads and customers will vary for each business but there needs to be consideration of each channel and how they interact, for example: 

Effective and trackable brand investment is more important than ever – it is fundamental to achieve many platforms’ goal of becoming a destination site (i.e. the first step of a customer journey, skipping google search and associated marketing costs) but also helps sale conversion, as brand affinity builds trust.

It is key to get an appropriate balance between using Google’s knowledge of customer searches to capture a wide range of web traffic (a “broad match” search strategy) vs focusing spend on specific keywords that may be more expensive but are known to convert effectively to a sale (an “exact match” search strategy).

Optimising customer acquisition is a complicated process which will be unique to each model but also each business, requiring specialised diligence and go-to-market strategies. Getting the right strategy helps keep control of customer acquisition costs (CPL/CPA) and optimise strategies across the marketing funnel. 

3. Deepen understanding of customers to drive conversion:  

Travel companies are increasingly leveraging technology and customer data to enhance the customer experience across digital touchpoints, including personalised content when researching destinations on the company’s website or optimising email nurturing flows to align with the peaks and troughs of customer activity. 

Investments in CRM, Customer Data Platforms (CDP) and marketing automation can be significant but allows operators to harness first-party data on customer interests and combine it with data on seasonality and occupancy rates to align available inventory with customer demand. With this knowledge, and utilising cost-effective email outreach and digital remarketing tactics, operators can create highly targeted and relevant communication during the consumer research phase, thereby boosting conversion rates.  

4. Nurturing Customers for Retention and Advocacy:  

Customer engagement has evolved from static email newsletter with standardised offers to highly automated and personalised messaging built on investments in CRM, CDP and marketing automation platforms.  

Ongoing engagement after a customer’s holiday can play a dual role of both increasing Customer Lifetime Value (CLTV), through repeat booking or loyalty programmes, and driving advocacy through happy customers.  

The ongoing rise in social media and influencers plus the inherent ‘shareability’ of travel means establishing a recommendation and referral engine is a key focus for many brands. P2P (peer-to-peer) Platforms are among those leading the way with community building tactics (including automated requests for customer feedback through online review platforms) as trust and reputation is fundamental to the model.  

5. Take Advantage of AI to Process Big Data and Introduce Innovative Features:  

The transition from traditional travel agents to digital platforms has left a gap that AI is swiftly filling. With the collection of vast amounts of customer data, AI enhances the online travel experience by leveraging this Big Data to generate personalised, real-time recommendations. A 2023 McKinsey report highlights AI’s potential to contribute $180-300bn annually into the travel and logistics sectors, underscoring its transformative impact.  

Expedia’s “Romie” and Kayak’s ChatGPT-based assistants are examples of how OTAs and travel aggregators provide personalised suggestions and enable group chat interactions. Consumers are already picking up these innovations, with a survey revealing that 60% of US respondents utilise AI for trip planning via mobile devices.   

Recognising AI and its transformative power, in particular, Private Equity firms have shown activity in pursuing investments in AI-driven companies. A notable example includes Centares’ acquisition of Internova Travel Group, signalling a strong belief in AI’s capacity to revolutionise traditional travel models.  

Conclusions 

The travel sector is firmly a digital one. Whether it is a digital-first business or a traditional call centre-led model, the ability to assess existing or potential digital capability and technology investments is crucial for any investor in this market. A holistic assessment across commercial, digital and technology allows sellers to maximise exit value or buyers to identify assets with the potential to grow profitably. 

For more information on Palladium’s extensive travel expertise across digital, commercial and technology due diligence, reach out to Dan Shreeve or Ben Martin today.