Monday, March 19, 2007

So what about the Big, erm, Two then

[Updates at the bottom of the post]

All hell is breaking loose this morning as the rather predictable merger between TUI and First Choice is absorbed by the travel and mainstream business media.

The deal will see the pair, to be known as TUI Travel, eventually listed on the London Stock Exchange and responsible for around 27 million customers a year.

Here are the numbers:

  • Pre-tax cost savings of £100 million a year
  • Yearly proforma revenues of £12.1 billion
  • 51% owned by TUI; 49% by First Choice
  • A total of 200 holiday brands [yes, that's two-zero-zero]
Of course this all makes perfect sense for the two companies involved. Indeed, Thomas Cook and MyTravel did almost exactly the same thing in February- creating "The Big Three".

So now we have the Big Two.

What immediately springs to mind is that the consolidation so widely expected across the industry is still coming from within what people still call "the traditional end" of the market.

But is the current trend for creating large travel companies simply by combining the resources and brand power of existing travel players the best strategy - or even the only strategy?

We would suggest that the recent developments actually gives people a glimpse at what might be happening at a global level.

Or, more conspiratorially, the two recent deals are an attempt to ward off potential suitors from across the Atlantic Ocean.

In fact, when looking at which companies are left amongst the clutch of so-called large travel providers, it seems rather odd that a crossover hasn't happened already.

Clearly some business between one of the large US players - Expedia, or one of the Sabre or Travelport-owned companies, such as Travelocity or Orbitz - and a traditional European travel company would create a rather tantalising travel mega-brand.

The formation of a company which incorporates the servicing power of an established supplier/multiple with the online expertise and brand power of an US travel provider would undoubtedly be a very exciting prospect.

So why hasn't it happened?

The large European travel providers would argue that their recent efforts - Thomon/TUI in particular - to beef up their online presence has meant it can compete happily with the growing US ownership of the travel industry. They would clearly not want to a merger...

This is perhaps so - traditional players still want/need to protect their interests. So attention has to turnto the travel conglomerates dominating the US market.

With piles of private equity money sweeping through the industry in the US it seems inconceivable that interest has yet to turn to the European tour operator market.

While we are not suggesting that the recent deals have been created simply because of a need to protect themselves against a US invasion [admittedly a rather unfortunate turn of phrase] - it is worth bearing in mind.

It must surely only be a matter of time before the US moneymen run out of potential small-to-medium sized online travel companies to buy and look elsewhere, perhaps at the unique European tour operator market.

UPDATE: Peter Long, the chief executive-in-waiting of TUI Travel, is reported to have told a press conference this morning:
"Expedia, Travelport and Travelocity are the new competition. The more business we can get online, the more we can drive down our cost of acquisition."
Kevin May, editor, Travolution


Tim Walters said...

I'm reminded of an ancient (Sept 2006) blog in which one asked:

"When and how do the UK’s “Big Four” tour operators become the “Big Three” – or less?"

To which a soothsayer answered:

"Whoever emerges victorious in the battle of the web will be in a very strong position to snap up one of the others. TUI and Thomas Cook lead the way in both on and offline, some argue, so worrying signs for the other two?!?"

Travolution Blogger said...
This comment has been removed by the author.
Travolution Blogger said...

Mr Walters is referring to this post on the blog:

Is the real mash-up the industry itself?

Anonymous said...

what i want to know is whats going to happen to the shops?i am a thomson shop manager and there is a first choice also in my town so obviously one of us will go!as ususal we are the last to know!

Select World Travel said...

If anonymous is any where near Great Malvern, feel free to get in touch.
Perhaps First Choice should be licking their Lips, Sureley their Portfolio of specialist markets suits Tui better than Mytravel.

Joe Buhler said...

I'm in total agreement with the post concerning a possible future tie-up between one of the two "traditional" majors left in Europe and a U.S. online majors. Would be a formidable combination on a massive scale and a true global entity. I guess it's only a question of when not if.

Steve Endacott said...

The main reason why the american online giants have not moved into the beach market is that they have been strugglying to make sense of the purchases they have already made e.g. Lastminute, Ebookers etc and have been loath to move into a market which they have very little if no home grown experiance of.

Once the new kids on the block demonstrate a track record of consistant profitability, then the interest is likely to be stired and as predicted a potent force will be born. In the mean time watch out for more home grown players such as since they mean business!

Steve Endacott

Guillaume said...

Mr Long says "Expedia, Travelport and Travelocity are the new competition." Does that mean that until now, TUI or FirstChoice were ignoring them?
I think the battle will be about retaining customer loyalty between those players and who is being totally transparent about their fees upfront (and not at the nearly end of the booking process).

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