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Sector outlook for 2025 and beyond
As we prepare to host the ABTA Travel Finance Conference in March 2025, we’ve spent some time thinking about where travel is as a sector and the most important areas for our clients in 2025 and beyond.
Reassuringly, what we are hearing from the market remains positive, despite strong performance over recent years. This is all the more impressive as growth in recent years has come in the face of relentless cost-of-living challenges, including materially higher prices from Travel suppliers. Despite declining UK Consumer confidence, consumer surveys and sector demand, profiles continue to indicate that consumers are still prioritising Travel above other discretionary spending – although with some changes in behaviours, with late bookings noticeably increasing share.
With this in mind, the expectation was that sector M&A activity would accelerate during the course of H224 and H1 25, with a number of long held and high-quality assets coming to market – both large and small. The hope was that this would resolve some of the asset overhang triggered by longer than planned hold periods for investors driven by 3-4 years of COVID disruption. We have clearly seen some successful outcomes, but private equity remains cautious on the sector and we still see gaps in valuation expectations. Hopefully, these will gradually disappear as we leave the COVID impacts behind us and businesses can more easily offer comfort around a new “steady state” performance – but it is not clear to us that this will all be resolved during the course of this year alone.
On the operational side, the businesses coming out of COVID are often stronger than the ones that went in. One of the many negative effects of the pandemic was that most businesses had to remove a number of high-quality people and have had to be very thoughtful on how to build back. This has involved changes to operating models, renewed focus on sales and customer teams, and a more effective understanding of the customer journey and engagement points. Most businesses we see are now trading well ahead of 2019 levels; where this is not the case, it tends to suggest the market has moved away from that proposition or new entrants (often more tech enabled) have come in to take market share.
Finally, of course, AI… As in all sectors, travel businesses are talking to us about AI and how it will change their operating models – and the risk it poses to their core proposition. AI presents opportunities to drive genuine efficiencies across both the customer front-end and the core of operations. We don’t expect the whole Travel sector to be fundamentally disintermediated by an AI driven super-app or some other gateway. However, it is clear that those businesses that fail to embed AI in their operations to improve customer experience throughout the travel lifecycle will struggle to compete. On the other hand, applying AI in the right places will allow better customer targeting, speed up customer response times, improve conversion rates, and facilitate supplier communications thereby anticipating and removing points of friction in consumers’ holiday experiences. It will improve the travel product.
We are really looking forward to welcoming all of you to our offices for the ABTA Travel Finance Conference. We will be picking up on all of the themes above as well as covering the regulatory landscape and changes to accounting and tax. We hope to see you there for some great updates and of course some social time together to catch up.
David Larsson, KPMG Strategy Travel Sector Lead
Richard Aston, KPMG Travel Sector Lead