Holiday mergers book into Europe

News Analysis: The link-up of First Choice and the Swiss group Kuoni creates a pounds 1.4bn giant

THE FRENETIC consolidation of Britain's travel industry took on an entirely new dimension yesterday after a UK tour operator confirmed it was seeking its future in Europe. First Choice and Kuoni Reisen, the Swiss travel group, published the terms of the pounds 1.4bn merger that will create a powerhouse of a business with 7 million customers in 20 countries.

A new UK-based company called Kuoni Holdings plc will be formed to run the combined group, and its shares will be listed in both London and Zurich. Kuoni shareholders will own 53 per cent of the new group with the remainder owned by holders of First Choice shares.

The deal, news of which was sneaked out on Budget day last week, marks a fresh stage in a process sparked by the Monopolies and Mergers Commission in 1997 when it gave a clean bill of health to competition within the UK market.

Since that report, Thomas Cook has bought the UK activities of Carlson, the US group, in a deal that creates a pounds 25bn-a-year business. The company's Sunworld holiday business has snapped up Flying Colours - which includes the Club 18-30 holiday business - for pounds 50m.

First Choice has bought tour operator Unijet and upmarket travel company Hayes and Jarvis in a joint deal worth pounds 134m. Thomson Travel has made seven acquisitions since its flotation last May, including Simply Travel and the Polish company, Scan Holiday.

Yesterday's merger marks a departure from the strategy of previous deals. Rather than pursuing vertical integration between travel agency, tour operators and charter airlines in the UK, the Kuoni/First Choice deal marries a UK high-volume tour operator with an international travel group whose sales operations cover a wide geographical spread. This means the merger is unlikely to encounter opposition from UK or European competition regulators.

Ian Clubb, the chairman of First Choice, told The Independent: "The key reason behind this merger is that it creates a company that would be capable of participating in the next round of consolidation that we believe will occur in the European industry."

He said the merger put First Choice, which had suffered from a small market capitalisation, on a similar ranking to the UK market leaders in terms of size, Thomson Travel and Airtours.

"Our view is that in the UK most of the consolidation that can happen has happened. There are four companies with something like 80 per cent of the market and it is our view, based on experience and advice, that combining any two of those four would end up with serious competition problems."

He said a referral to the MMC would take six months, while a second-stage European Commission competition inquiry would take another five. "The thought of keeping First Choice hanging about for that length of time is just anathema," said Mr Clubb.

There had been speculation that Airtours, the second-biggest UK operator, might step into the fray and bid for First Choice, which held third place before the Kuoni deal. But it is highly likely that such a deal, which would have created a leviathan with one-third of the UK market, would have been blocked, especially in the wake of Government's decision to launch a wide-ranging inquiry into high-street prices.

First Choice shares fell 14.5p to 173p yesterday as rumours of a rival bid receded.

Mr Clubb said Kuoni Holdings plc would be ideally placed to take advantage of the next wave of consolidation in Europe. "We would have found it very difficult as First Choice to make a big step into Europe, but with the multi-cultural Kuoni team that's easy to achieve and we will have the financial muscle to do it," said Mr Clubb, who becomes executive chairman.

The merged group will be behind Germany's Preussag in Europe, but a leadership battle is not on the cards as profits, not size, is the key, Kuoni said.

Financial figures published by the two companies yesterday showed that First Choice made a pre-tax profit of pounds 50m in the year to October, a 330 per cent rise on the pounds 15.4m it made in 1997. Turnover rose about 20 per cent to pounds 1.24bn. Kuoni increased its profits to pounds 62.6m in 1998 from pounds 56.7m on sales up by pounds 460m to pounds 2.25bn.

Kuoni Holdings will include a wide range of businesses. First Choice brings a 250-strong retail network, its tour operation business in the UK, Ireland and Canada and the Air 2000 airline. Kuoni's businesses include premium long-haul holidays, a charter airline and one of the largest Swiss travel agencies.

The two groups said there would be extensive benefits from the merger. Kuoni Holdings will have strong positions in the leisure markets in Austria, Canada, Denmark, France, India, Ireland, Italy and the Far East, as well as in the home markets of the two merger partners.

Other benefits include savings in buying aviation fuel and insurance and making more efficient use of the combined operations' resources. Mr Clubb said it was too early to detail exactly what cost savings would be made through the merger, but he made clear there would be no job cuts among the 11,000 workers.

A major benefit, especially for investors worried by the cyclical nature of the travel business, will be a greater ability to manage seasonal capacity and demand across different geographical markets.

Where this leaves the rest of the UK industry is unclear. The consolidation to date has been driven by two factors. First, the MMC report opened the floodgates for acquisitions as it hinted that there would be no regulatory problems for further vertical integration other than in the travel insurance business.

But that process has largely been completed and only two independent tour operators with more than 1 per cent market shares remain - Cosmos and Inspirations.

The second factor has been the growing trend towards long-haul holidays at the expense of the traditional package holiday to the Mediterranean. Industry figures show that long-haul holidays have grown by 12.3 per cent over the past four years compared with a 1.4 per cent fall in short-haul.

One industry analyst said: "This is what the First Choice deal is about - putting Kuoni's high-margin premium long-haul business together with the First Choice low-margin package holiday to Majorca."

Start your day with The Independent, sign up for daily news emails
Property
pets
Arts and Entertainment
tvGame of Thrones season 5 ep 4, review - WARNING: contains major spoiliers!
Arts and Entertainment
tvThe C-Word, TV review
Arts and Entertainment
The Ridiculous Six has been produced by Adam Sandler, who also stars in it
filmNew controversy after nine Native American actors walked off set
Sport
Danny Jones was in the Wales squad for the 2013 World Cup
rugby leagueKeighley Cougars half-back was taken off after just four minutes
Life and Style
The original ZX Spectrum was simple to plug into your TV and get playing on
techThirty years on, the ZX Spectrum is back, after a fashion
News
Tiger Woods and Lindsey Vonn are breaking up after nearly three years together
peopleFormer couple announce separation in posts on their websites
Sport
football
Life and Style
Google celebrates Bartolomeo Cristofori's 360th birthday
techGoogle Doodle to the rescue
Arts and Entertainment
Haunted looks: Matthew Macfadyen and Timothy Spall star in ‘The Enfield Haunting’
tvThe Enfield Haunting, TV review
News
news
News
The Mattehorn stands reflected in Leisee lake near Sunnegga station on June 30, 2013 near Zermatt, Switzerland
news
ebooks
ebooksA celebration of British elections
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Claims Administrator

£16000 - £18500 per annum: Recruitment Genius: This is an excellent opportunit...

Recruitment Genius: Senior SEO Executive

£24000 - £28000 per annum: Recruitment Genius: A Senior SEO Executive is requi...

Recruitment Genius: Online Customer Service Administrator

£16000 - £18000 per annum: Recruitment Genius: An Online customer Service Admi...

Recruitment Genius: Digital Marketing Executive

£18000 - £22000 per annum: Recruitment Genius: This global, industry leading, ...

Day In a Page

Fishing for votes with Nigel Farage: The Ukip leader shows how he can work an audience as he casts his line to the disaffected of Grimsby

Fishing is on Nigel Farage's mind

Ukip leader casts a line to the disaffected
Who is bombing whom in the Middle East? It's amazing they don't all hit each other

Who is bombing whom in the Middle East?

Robert Fisk untangles the countries and factions
China's influence on fashion: At the top of the game both creatively and commercially

China's influence on fashion

At the top of the game both creatively and commercially
Lord O’Donnell: Former cabinet secretary on the election and life away from the levers of power

The man known as GOD has a reputation for getting the job done

Lord O'Donnell's three principles of rule
Rainbow shades: It's all bright on the night

Rainbow shades

It's all bright on the night
'It was first time I had ever tasted chocolate. I kept a piece, and when Amsterdam was liberated, I gave it to the first Allied soldier I saw'

Bread from heaven

Dutch survivors thank RAF for World War II drop that saved millions
Britain will be 'run for the wealthy and powerful' if Tories retain power - Labour

How 'the Axe' helped Labour

UK will be 'run for the wealthy and powerful' if Tories retain power
Rare and exclusive video shows the horrific price paid by activists for challenging the rule of jihadist extremists in Syria

The price to be paid for challenging the rule of extremists

A revolution now 'consuming its own children'
Welcome to the world of Megagames

Welcome to the world of Megagames

300 players take part in Watch the Skies! board game in London
'Nymphomaniac' actress reveals what it was really like to star in one of the most explicit films ever

Charlotte Gainsbourg on 'Nymphomaniac'

Starring in one of the most explicit films ever
Robert Fisk in Abu Dhabi: The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers

Robert Fisk in Abu Dhabi

The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers
Vince Cable interview: Charging fees for employment tribunals was 'a very bad move'

Vince Cable exclusive interview

Charging fees for employment tribunals was 'a very bad move'
Iwan Rheon interview: Game of Thrones star returns to his Welsh roots to record debut album

Iwan Rheon is returning to his Welsh roots

Rheon is best known for his role as the Bastard of Bolton. It's gruelling playing a sadistic torturer, he tells Craig McLean, but it hasn't stopped him recording an album of Welsh psychedelia
Russell Brand's interview with Ed Miliband has got everyone talking about The Trews

Everyone is talking about The Trews

Russell Brand's 'true news' videos attract millions of viewers. But today's 'Milibrand' interview introduced his resolutely amateurish style to a whole new crowd
Morne Hardenberg interview: Cameraman for BBC's upcoming show Shark on filming the ocean's most dangerous predator

It's time for my close-up

Meet the man who films great whites for a living