Thomson investors furious at package tour price war

INSTITUTIONAL shareholders in Thomson Travel Group yesterday expressed anger and astonishment at the tour operator's decision to launch a package holiday price war in reaction to Airtours' pounds 850m hostile bid for First Choice.

Investors said the company risked ruining its reputation as a stock market company while taking the travel industry back to the dark days of perennial discounting and low margins. The company's management is unlikely to survive the misguided strategy, shareholders said.

One institution asked: "Is this the behaviour of a mature, well-disciplined public company? The answer is no. It almost implies that they came to the market on a false prospectus last year. They said all this stuff about profitability being paramount and now they go and do this."

Another questioned why the company had decided to risk an all-out price war even though Airtours' bid for First Choice might well run into problems with the regulatory authorities. "If the Airtours bid is blocked then Thomson would have done all this for nothing," one senior fund manager said. "Even if they draw back the damage will have been done. It will be some time before the management are forgiven."

Fund managers said they are waiting to meet Thomson's management team in order to hear the reasoning behind the move. "I don't see where they are going with this strategy. There could well be management changes as a result," said one.

The investors' uproar followed Thomson's statement at its annual meeting on Wednesday that it will fight to maintain its market leadership of the UK package holiday sector. In response to Airtours' bid for First Choice, which would enable Airtours to become the UK number one, Thomson said it would increase its holiday supply by 7 per cent next year and launch a series of discounted holidays and a new budget brand, which has yet to be named. New brochures were sent out yesterday.

Michael Brown has defended the action, saying: "This is not about market leadership for its own sake. Being market leader leads to economies of scale and we cannot stand by and watch a competitor make these moves."

But while management face a difficult task appeasing shareholders, Thomson's aggressive action almost certainly has the backing of the Thomson family, which still holds 17 per cent of the company and has a seat on the board.

Thomson shares have been devastated by the board's actions. Yesterday they fell 3p to 127.5p, having stood at more than 180p a few weeks ago. The collapse will severely impede Thomson's ability to launch a rival bid for First Choice, even though it would face an even tougher ride from the competition authorities.