Getting burnt on sunny holidays

INVESTMENT COLUMN
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The Independent Online
School's out for summer from lunchtime today, and tour operators are eagerly anticipating a last-minute rush of late bookings for the two million foreign holidays, a fifth of the total, remaining unsold. They may be disappointed.

The signs proclaiming Summer Madness in the windows of Going Places, the travel agency arm of Airtours, are closer to the mark than the company realises. Industry forecasts of how many summer holidays could be sold this year appear to have been insanely optimistic.

The writing appeared on the wall in January, start of the prime selling season when holiday companies blitzed television screens with advertisements showing sun-drenched beaches - all yours for a deposit of only pounds 20.

The uptake from the key January-to-March booking period was far from encouraging, however. The next advertising blitz in June, when marketing departments brought out the big discount guns, met with a similar response.

There is simply too much capacity, and the latest industry forecasts point to zero market growth. The industry's capacity for the July to September season has had to be cut by 7 per cent - probably not enough. Already- slim profit margins will be further squeezed.

This is bad news, but not necessarily disastrous for the market leaders - Thomson, Airtours and particularly First Choice, which is laying to rest the previous management's mistakes.

They sell three out of every four overseas tours and what they say largely goes. Each of the three benefits from vertical integration, owning the whole process from airlines through to travel agents.

Harder hit will be the thousands of independent travel agents and stand- alone tour operators. The industry is inexorably on the path to consolidation, which will only enhance the power bases of the big three.

Airtours recognised the trend a couple of years ago, and has diversified into cruise ships and buying overseas travel companies. First Choice has also cemented a base in Canada.

These diversifications, however, will not solve this summer's problems in the home market and the industry will have to seriously rethink its strategy for next year, with particular focus on trying to persuade customers to give up the habit of late booking. The outcome of the summer season, and the fate of the sector's shares, hinges on business over the next two weeks.

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