Alibaba Group Holding Ltd. agreed to buy as much as a 9.99% stake in Dufry AG, giving the Swiss duty-free giant a lifeline as the pandemic hammers the business.

Dufry said Monday it’s proposing a capital increase that will raise up to 700 million Swiss francs ($763 million), and Alibaba will participate. Advent International Corp., a private equity company, also plans to invest as much as 455 million francs. Dufry shares surged as much as 16%.

The Swiss company said the proceeds from the share sale will help it buy out its Hudson Ltd. U.S. unit, as previously announced.

The capital increase will bolster the company, whose market value has dropped to 1.6 billion francs as the shares trade near the lowest in a decade. The companies are also forming a joint venture in China that will combine Alibaba’s digital capabilities and network with Dufry’s travel retail business in that market.

Eoin Treacy's view

The absence of airline traffic gutted Dufry’s business model. That’s a condition which has been shared by every business leveraged to travel and tourism. The big question is how long air travel will take to recover. I remain of the opinion we are close to the peak of coronavirus hysteria. That suggests it can only get better from here.

I’ve seen estimates of 50% of all hotels being shuttered. That’s seems wildly pessimistic but if true it means the remaining outlets will capture massive market share and will be in a strong position to expand subsequently.  

The decision to reabsorb Hudson represents a net profit from that portion of the company’s IPO last year. Airlines are now beginning to announce additional international routes. That suggests more traffic at airports.

Fortress Transportation and Infrastructure is also heavily leveraged to transportation with aircraft leasing, containers, ports and toll road assets. It bottomed in March and has recouped about 75% of the decline while sustaining its dividend.

Dufry paid special dividends in 2018 and 2019 but does not have a history of reliable payouts. The share popped on the upside today to hit a new four-month high. With additional investors, there is now a much-reduced risk of insolvency and the share is highly leveraged to passenger volume recovery in the airline sector.