Thursday, July 14, 2016

Hotelbeds: The best of Mallorca

Hotelbeds is unquestionably a successful business. "The world's bedbank", as it calls itself, is a world player. From having once offered only one destination market - Spain - for one traveller-providing market (the UK), it now has (fifteen years after it was founded) 180 country destination markets offering more than 75,000 hotels and 120 supplier markets. That's impressive stuff, and the all more impressive for being "made in Mallorca".

The business came into being following the purchase of Viajes Barceló (part of the Barceló hotel group and now B the Travel Brand) by First Choice. The travel agency was to be sold back to Barceló, but what was the international event and destination services division, which included Hotelbeds, was kept hold of. When First Choice was formally absorbed by Tui in 2007, Tui Travel Accommodation & Destination was established: its director was the founder and president of Hotelbeds, Joan Vilà.

Because of a strategic restructuring, Tui sought a purchaser for Hotelbeds. It found one in the form of fund managers Cinven and CPPIB, the Canada Pension Plan Investment Board, the Canadian government pension fund managers. There was more to be impressed with. The price. Hotelbeds went for a total of 1,165 million euros; the deal was sealed this spring.

Vilà has said that the business was founded right at the time that the travel industry was about to undergo massive transformation. Hotelbeds caught the initial wave, therefore, of the technologically-driven new age of travel. Value in the business obviously resides in the numbers it can generate. Tui revealed that the price paid to buy the business (almost 50% greater than had originally been hoped for) equated to 1.2 times the 2015 revenue with an underlying operating profit of 69 million euros.

But major acquisitions aren't made solely because of the numbers. Among other factors that attracted Cinven and CPPIB were the quality of senior management (with Vilà at the helm), a strong record of year-on-year growth and the technologies. Cinven understood the value of the latter very clearly. It has been a significant investor in Amadeus, a global leader in IT solutions for the travel industry and a company that is based in Madrid.

One might in fact argue that the greatest value lies with the systems. It is revealing to note that a couple of years ago, Hotelbeds identified another Spanish company, Transhotel, as a main competitor in the domestic market. Transhotel hit the rocks in 2014, and a reason for its problems was the fact that its technologies were said to have been outdated. The travel industry, never slow to change and adapt, has been moving at increasingly rapid speeds for the past fifteen years. Businesses which are slow end up in liquidation.

The combination of travel, tourism and technology is something that the Balearic government is keen to explore as a means of economic diversification, reputation enhancement and job creation. It is totally fitting, therefore, that the government should look upon Hotelbeds as precisely the type of business that it wishes to promote. Totally fitting also that within the government there is a combination of tourism and technology in the portfolios of its vice-president, Biel Barceló.

Since he adopted these responsibilities, we have heard a great deal about the tourism portfolio and very much less about innovation and research. Earlier this week, though, Barceló and President Armengol went to Hotelbeds at the invitation of Joan Vilà. Barceló observed that the company "fits perfectly" with the government's economic plans.

It does so in a variety of ways. It attracts talent to come and live in Mallorca (the purchase is not going to change the location). They add to the sum of knowledge locally, which is in any event already high: around a half of the 1,600 staff at the Palma HQ (there are over 6,000 worldwide) are products of the University of the Balearic Islands. They represent also the government's desire for quality employment. This said, and acknowledging that one review is hardly representative, a current employee reports that while the work atmosphere is good as are opportunities, the salaries are low and there is a high level of employee turnover. This might rather depend on the nature of the job though: call centre jobs (by no means all the employment on offer) are known for their high turnover, while in general this is a company operating in a fast-moving environment with highly competitive demands.

This caveat aside, and the employee who supplied the review does nevertheless give Hotelbeds a four out of five star rating, here is a business which does indeed fit with the government's vision. Moreover, its dedication to technological advances in Mallorca was reinforced last year by the creation and funding of the Hotelbeds Group Chair of Tourism Innovation at the university.

An impressive business, and a model worthy of the government's attention and interest.

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