Carlson’s agreement last week to acquire the remaining 45% of Carlson Wagonlit Travel (CWT) reflects the company’s tightening focus on the travel sector as well as its increased confidence in the continued growth of business travel spending.
Carlson, which on June 23 said it would buy out JPMorgan Chase’s share of CWT for an undisclosed price, will own 100% of CWT for the first time in the 20-year history of the agency.
CWT, which generated $26.9 billion in sales volume last year through its wholly owned operations and joint ventures, ranked No. 4 on Travel Weekly’s 2014 Power List, behind only Expedia, Priceline Group and American Express.
“This acquisition, along with our ongoing investment in Carlson Rezidor Hotel Group and its family of brands, helps solidify our long-term direction for the company,” Carlson CEO Trudy Rautio said in a June 23 statement. “We have benefited from a long relationship with JPMorgan Chase & Co. and will continue to work with them in the future.”
Carlson, which began operations in 1938, bought its first Radisson hotel in 1962 and is currently redirecting its finances squarely at the travel space. Its Carlson Rezidor Hotel Group has more than 1,300 hotels worldwide under brands such as Radisson, Radisson Blu and Country Inns & Suites.
In a move intended to pare its nontravel assets, the closely held Minnesota-based company last month agreed to sell its TGI Fridays chain of more than 900 restaurants to a pair of private-equity firms for an undisclosed price.
Carlson, which expects to close on both the CWT buyout and TGI Fridays sale next month, is making a bigger play in business travel at a time when strong growth in the sector is widely anticipated.
The Global Business Travel Association (GBTA) in April boosted its forecasted growth in U.S. business travel spending for 2014, to 7.1% from 6.6%. This year’s business travel spending will total $293.3 billion, while the business travel trips Americans will take this year will increase 2%, to about 465 million, the GBTA said.
Mike Cameron, CEO of Salt Lake City-based Christopherson Andavo Travel, said of Carlson, “They were a very diversified hospitality and travel company, which would make it harder to focus on their core competency.”
For that reason, he said he wasn’t surprised by Carlson’s decision.
“Within the context of the three industries they operated in — travel management, hotels and restaurants — the restaurant group was certainly the odd man out,” Cameron said. “[Carlson] sees a bright future in business travel.”
At the time of its launch two decades ago, CWT was notable for being what was considered the first truly transatlantic travel agency. Founded in 1874 as a rail-logistics company, the former Compagnie Internationale des Wagons-Lits was acquired by Paris-based hotelier Accor in 1992.
Meanwhile, Carlson acquired Ask Mr. Foster from Peter Ueberroth in 1979 and changed that division’s name to Carlson Travel Network in 1992.
In 1994, Carlson Travel Network and the renamed Wagonlit Travel joined operations and officially merged under the Carlson Wagonlit Travel banner in 1997.
Since then, CWT has become a travel giant, acquiring firms such as North America’s Navigant International as well as other agencies in Sweden, Eastern Europe and Latin America within the last decade. It now operates in more than 150 countries.
Meanwhile, Accor divested its 50% stake in CWT in 2006 to better focus on its hotel business, selling 45% of CWT to JPMorgan Chase and its other 5% to Carlson.
The actual value of the 45% stake that Carlson is now buying remains in question, as the company does not disclose CWT’s annual revenue. Accor’s former 50% stake was valued at $465 million eight years ago. Meanwhile, Carlson said in a separate statement last week that it would sell $360 million in debt to “partially finance” the buyout.
Additionally, Carlson will boost its stake in a business travel market that became more fragmented earlier this year when American Express sold half of its business travel division to an investor group led by Certares and including the government of Qatar.
The Certares-led group paid $900 million for its stake in the American Express travel division.
Cameron pointed out that while AmEx may have benefited from the cash influx the private equity investment produced, Carlson could benefit in consolidating ownership of CWT by no longer having to factor in the investment goals of a partner such as JPMorgan Chase.
“A private equity owner may have ROI goals in mind that require them to second-guess long-term strategic investments,” Cameron said. “They will no longer have another equity partner looking over their shoulder.”
Follow Danny King on Twitter @dktravelweekly.
Photo of business traveler at airport courtesy of Shutterstock.com.