Scott Dunn deal takes Flight Centre into a new league

UK travel firm acquisition fast tracks US, UK luxury market entry for FCTG

Flight Centre Travel Group (FLT) has no imminent intention to introduce its newly acquired UK-based luxury travel entity, Scott Dunn, to the Australian market, but will instead forge ahead with growth plans in its home-market, the US east coast and Singapore, senior brass from the travel juggernaut have said.

This week, FLT revealed a strategic buyout of the multi-award-winning, high-end leisure holiday package specialist for AU$211 million, with the deal expected to close by the end of February.

Scott Dunn offers an extensive and diverse product range, from honeymoons and safaris, to tailor-made touring, ski holidays and expedition cruising. The average booker age is 48, below many competitors in the same luxury space, the group said. Flight Centre’s average customer age is 51.

Scott Dunn’s two primary markets are the UK and US, where there are more affluent travellers and high-net-worth individuals with deep pockets to spend on travel. The consultant-led business has over 200 full-time equivalent employees.

Tuscany, Italy | Source: Scott Dunn Travel/Facebook

Subscribe to LATTE’s free eNewsletter to keep up to date with everything in the luxury travel industry.

James Kavanagh, FLT Global Leisure Travel CEO said the deal fits with the company’s strategic rationale and aligns with a core objective – “to rapidly grow into the luxury segment” – while tapping into one of the most resilient segments in travel.

“We’ve seen the luxury market rebound the fastest out of all the segments that we operate,” he told an investors call, citing that Scott Dunn has already recovered to 100% of its pre-COVID business levels, whereas Flight Centre’s core retail shopfront and Travel Associates brands were in the 70-80% range.

Scott Dunn will be complementary to FLT’s existing high-end retail brand, Travel Associates, which Kavanagh said has been “moving up from premium into luxury”.

For background, the FLT Leisure boss said Scott Dunn’s clients tend to work with a personal travel advisor who takes care of every element of their “extravagant holidays”. As an example, he cited an itinerary for a Scott Dunn client to Iceland

James Kavanagh, Global Leisure Travel CEO, Flight Centre Travel Group

may include helicopter tours over an active lava volcano, snorkelling over tectonic plates, arctic surfing and hiking, and ensuring all the client’s dinner reservations throughout their trip were booked.

Fagradalsfjal volcanic eruption in Iceland | Credit: Tanya Grypachevskaya/Unsplash

Kavanagh said the average booking value of a Scott Dunn client is “significantly more” than FLT’s mass market ‘red and white’ customer (at around $3,000) and the premium/luxury space that Travel Associates is positioned within (at around $10,500), at the upper end, close to $39,000. That’s a massive 3.7 times greater value than Travel Associates.

“Consumers in this segment are increasingly looking for more memorable experiences as opposed to material possessions…they are less susceptible to economic downturn or inflated interest rate rises.”

The acquisition provides FLT with the ability to gain an immediate and stronger presence in the luxury travel field in the UK and US, both highly sought markets where FLT is currently underrepresented.

According to Graham Turner, FLT Managing Director, taking over Scott Dunn will fast-track Flight Centre’s entry into that space by at least 10 years if the company had tried to tap it organically, “and even then we probably would not have the same brand recognition and brand value that they’ve got”.

Turner told investors the acquisition would be “very successful” and scalable, particularly in North America – where the growth strategy will be underpinned by Flight Centre’s established capabilities – and the UK where there is “a lot of potential.”

“[Luxury is] already quite a large market but it’s growing quite rapidly, about 9 to 10 per cent a year”.

Cherry Blossoms, Japan | Source: Scott Dunn Travel/Facebook

Scott Dunn will be positioned within a luxury collection of brands, alongside the established Travel Associates premium travel brand, in Australia and New Zealand. That luxury portfolio is open for further expansion in other markets.

“We think that the combination of Flight Centre and Scott Dunn together will ensure that we can grow the segment more,” Turner said.

“[Scott Dunn] has a very strong and experienced management team, headed by CEO Sonia Davies, who have built a global leader in the luxury travel segment, and will continue to run Scott Dunn as a separate business unit,” Turner said of the arrangement.

“High-net-worth, time poor customers highly value the services of Scott Dunn as shown by their customers’ loyalty,” he added.

Guest loyalty is also huge for Scott Dunn, rising from a 50% repeat booking rate in the FY18 (year ending October), to 63% for FY22.

Kavanagh said Scott Dunn will lift FLT’s total transaction value (TTV) contribution in leisure from 7% to 9%, however revenue will get a significant injection, rising from 8.8% up to 15% revenue margin.

And while the business will operate under its own steam, Kavanagh noted that “if there’s some quick wins [locally], we certainly will take it.”

“But at the moment, it’ll be standalone because the opportunity is so significant in other parts that we really don’t want the management team distracted.”

Scott Dunn restructure

Adam Campbell, FLT Global CFO highlighted that a business restructuring of Scott Dunn in recent years under the leadership of CEO Sonia Davies had already done the “heavy lifting” to convert the operation into a powerhouse in the high-end space.

That included removing underperforming businesses such as its chalet and villas products, and shutting down the Imagine Travel brand, at the same time investing in people, technology capabilities, and a new website to elevate the firm to a high-performing business.

The result of the transformation saw a 20+ percentage point increase (to 37%) on EBITDA margin.

Davies herself will be reinvesting into Scott Dunn about one-third of the proceeds she will receive from the transaction, and has committed to the business with FLT for another five years.

Travel Associates has previously flagged an expansion into the UK and US markets, exclusively foreshadowed by LATTE last July. A spokesperson for Travel Associates said “the acquisition doesn’t limit any plans to grow the Travel Associates brand, or Scott Dunn, into other markets in the future.”

Leave A Reply

Your email address will not be published.

WP to LinkedIn Auto Publish Powered By :