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Travel sector is attracting investors
July 05, 2010

THE great British summer is upon us and as people depart for their summer holidays, the travel and leisure sector has attracted interest among some investors.

This is a varied industrial sector, incorporating airlines, bus and rail companies, hotel and catering groups, and each of these areas is affected by different factors. Almost all are exposed to a greater or lesser extent to consumer spending though, and this may continue to come under pressure as the UK’s economy recovers gradually from recession.

In the airline industry, the biggest story of 2010 has been the impact of grounded planes due to the volcanic eruption in Iceland in April. It is highly unlikely that the UK’s two largest airline companies, British Airways and easyJet, will receive any compensation for the costs incurred through not being allowed to deliver services to its customers during this period.

Of the two, British Airways is less dependent on the consumer, with a higher percentage of its seats booked by corporate flyers. However, this is an area into which easyJet has made inroads, assisted by corporate travellers cutting costs and opting for cheaper operators. British Airways also has the added issue of the ongoing dispute with its staff, which has the potential to disrupt the company’s delivery of services over the holiday season.

Among the bus and rail companies, Arriva agreed to a takeover bid from Deutsche Bahn earlier this year at 775p per share. First Group is the largest of the UK’s operators in the sector, and in May, the company announced its results for the previous year, which were in the line the consensus of analysts’ expectations. The company also pledged to increase its dividend by 10% this year. Passenger volumes have been strong in its rail division and its US subsidiary, Greyhound, is also performing well. Another potential matter of interest is that the French rail giant SNCF was in the running to acquire Arriva and there is the possibility that the company may look to acquire another UK travel group. Compass, Carnival, Intercontinental Hotels and Whitbread are the largest companies in the travel and leisure sector. Compass is a contract caterer and support services group operating internationally and with little exposure to consumer spending.

In fact the company is much more dependent on corporate spending and may benefit from companies continuing to cut costs as this can lead to higher levels of outsourcing.

Carnival, is an international cruise operator and as such is exposed to consumer spending. However, its customers tend to be older people, who are often in a more affluent position and less inclined to cancel their holiday plans.

Intercontinental Hotels is internationally diversified but is also exposed to the consumer. Corporate customers are the main revenue source for Intercontinental though and over the last 12 months the company’s share price has risen by over 80%.

Whitbread is more focussed on the UK than Compass, Carnival and Intercontinental as a higher proportion of its hotels are situated here and 89% of profits last year were generated by its UK hotels and pub restaurants.

Corporate customers account for the bulk of this but there is consumer exposure through the pub restaurants division.

Whitbread also operates coffee shops under the Costa brand but again, this has proved to be a resilient business.

The travel and leisure sector has robust qualities. However, individual circumstances should always be considered, as no investment is suitable for all circumstances and appropriate advice should be sought before undertaking any investments.

Source :- http://www.nebusiness.co.uk/