City: North versus South in air tour wars

Click to follow
The Independent Online
DAVID CROSSLAND, chairman of the Airtours travel group, likes to think of Helmshore, a small village about 20 miles north-west of Manchester, as the centre of the universe. Its main building is a converted 19th- century cotton mill, which serves as Airtours' headquarters. It also has about 50 houses, one pub and no shops. Unless you fancy socialising with sheep, there's not much to do there except work.

From tiny beginnings as a travel agent less than 20 years ago, Mr Crossland has made Airtours into Britain's third largest tour operator. Now he is trying to take over the second largest, Owners Abroad, which would put Airtours in the same league as Thomson with more than 30 per cent of the package holiday market.

Owners Abroad is based in London and its chairman, Howard Klein, comes from Essex. Already the takeover tussle has assumed fiercely regional undertones; it's the north taking on the south, the blunt Lancastrian versus London barrow boy. If all things were equal, Mr Klein would probably see off the outsiders from up north. As a southerner, he is physically closer to the City, understands it better and has more friends in the national press, still a powerful force in influencing the outcome of contested takeovers. Unfortunately for Mr Klein, things are not equal.

Last year, he and his company committed one of the oldest and easiest management mistakes it is possible to make in the travel business. He overpriced, and had to discount heavily to sell his holidays at all. Profits collapsed and with them the company's share price. Airtours, despite its smaller market share, stole a march, leaping ahead in terms of stock-market value and earnings.

The present Airtours offer is certainly on the mean side and may need sweetening a little to be sure of success. But the record says it all; pounds 1,000 invested in Airtours five years ago, shortly after the company floated on the stock market, would today be worth pounds 16,500. The same investment in Owners Abroad would be worth just pounds 2,035. Add to that clear signs of management disarray at Owners - two directors went behind Mr Klein's back last summer to open merger negotiations with Airtours - and it is easy to see why there's not much love lost between Mr Klein and the stock market. Given the chance, shareholders will sell him down the river.

The big question is whether they will get that chance. But for the noise created by the Consumers' Association and independent tour operators, the deal would already have been waved through by the competition authorities.

In confidential guidance given before the bid was announced, the Office of Fair Trading told Airtours it had little to fear - despite the fact that there appears a strong prima facie case for investigation by the Monopolies and Mergers Commission. The two companies combined would have far more than the 25 per cent market share regarded as a monopoly, but the OFT didn't seem to think that mattered too much, initially at least.

The Airtours case goes roughly like this. Five years ago, Thomson was allowed to take over Horizon and establish a dominant position in the package holiday market. Admittedly, the circumstances were different but, having allowed the creation of one monster, it would seem perverse and inequitable to stop Airtours doing the same thing.

Furthermore, the argument runs, the holiday market is a highly competitive business rich in consumer choice. It is in a constant state of flux with new companies springing up almost daily and market shares shifting, often dramatically, from one year to the next.

That's the argument, anyway. In most industries, you wouldn't give pleading like this the time of day. It is the ambition and aim of all businessmen to wipe out the competition and establish a monopoly. Any businessman who says otherwise is not worthy of the name - or he's lying. In the travel industry, however, there may be at least an element of truth in these arguments.

The competition authorities have already got themselves into such a mess over the tour operators that it may prove difficult to act against Airtours. They can hardly prevent Mr Crossland from bidding for Owners Abroad, while allowing Thomson's present dominant market position to go untouched.

Nor would it be easy for them, having already sanctioned the creation of the Thomson combine, to order its break-up. It is a tricky call for Sir Bryan Carsberg, Director General of Fair Trading. Already the decision has been set back a couple of weeks. Whichever way he jumps, he is going to get a pasting for it.

Comments