Thomson to woo City over low-cost firm

THOMSON Travel Group is this week expected to launch a charm offensive on the City to head off mounting shareholder criticism of its plan to create a new cut-price holiday company.

The new venture is an effort to undermine Airtours' pounds 750m bid for First Choice and to protect Thomson's leadership of the UK package tour business. "We cannot stand by and let a competitor increase its compet-itiveness," said a spokesman.

"We believe there is some good potential in the low-cost area. We have the objective of increasing volume, because it gives us efficiencies of scale. We do not want market leadership for its own sake."

But shareholders, fearful that the move will cause a disastrous price war, reacted angrily to the news. Some accused Thomson of betraying the promises made when it floated last year.

The new cut-price company, which has yet to be named, would sell one- to two-star holidays. Other moves are planned, including the aggressive growth of the Thomson brand, which is the market leader in the three- to four-star market.

Since the announcement, Thomson shares have fallen sharply on fears of a price war. On Friday, the shares were 128p, compared to last year's flotation price of 175p.

"Flooding the market with cheap holidays would bring the industry to its knees," said Anna Barnfather, an analyst with WestLB Panmure. "It would be irresponsible to upset the balance of supply and demand. Thomson has the most to lose. It would have to cut its prices to its premium brands."

The value of Airtours' shares has also fallen, reducing the value of its all-paper offer. David Crossland, chairman of Airtours, tried to play down the threat to profits. He said there was a shortage of accommodation in the main resorts and denied there was much opportunity for downmarket breaks. "One- to two-star accommodation is difficult to sell," he said. "The vast majority of clients are looking for three- to four-star holidays."

Thomson's belligerence results from fears of being squeezed by Airtours, should its bid for First Choice receive the green light from the European Commission. Thomson believes that the pounds 35m in cost savings Airtours would obtain from acquiring First Choice would be used to cut prices and improve marketing.

Thomson's plans relate to the 2000 season, for which brochures will be released next month. All the plans for the current summer season were confirmed in February.

Over 40 per cent of First Choice shareholders back the Airtours bid. But if Brussels decides that the takeover has to be fully investigated, the bid will lapse. This would leave the way clear for First Choice to complete its pounds 1.5bn merger with Kuoni, assuming it meets with shareholder approval.

However, the merger is worth significantly less to First Choice shareholders than the Airtours bid. Mr Crossland is confident that the bid will go through. He said: "Thomson has 25 per cent of the market; with First Choice we would have 25 per cent, and Thomas Cook has 20 per cent."

These figures are open to dispute, however, because they take in the entire UK holiday business. Statistics based on package holidays suggest that Airtours/First Choice would have 33 per cent of the UK market.

Start your day with The Independent, sign up for daily news emails
  • 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

SThree: Graduate Recruitment Resourcer

£20000 - £22500 per annum + OTE £30K: SThree: SThree Group have been well esta...

Guru Careers: Application Support Analyst / 1st Line Support

£25 - 30k: Guru Careers: We are seeking an Application Support Analyst / 1st L...

Guru Careers: .NET Developer / Web Developer

£45K - £55K (DOE) + Benefits: Guru Careers: We are seeking a full stack .NET D...

Ashdown Group: Treasury Assistant - Accounts Assistant - London, Old Street

£24000 - £26000 per annum + benefits : Ashdown Group: A highly successful, glo...

Day In a Page

Not even the 'putrid throat' could stop the Ross Poldark swoon-fest'

Not even the 'putrid throat' could stop the Ross Poldark swoon-fest'

How a costume drama became a Sunday night staple
Miliband promises no stamp duty for first-time buyers as he pushes Tories on housing

Miliband promises no stamp duty for first-time buyers

Labour leader pushes Tories on housing
Aviation history is littered with grand failures - from the the Bristol Brabazon to Concorde - but what went wrong with the SuperJumbo?

Aviation history is littered with grand failures

But what went wrong with the SuperJumbo?
Fear of Putin, Islamists and immigration is giving rise to a new generation of Soviet-style 'iron curtains' right across Europe

Fortress Europe?

Fear of Putin, Islamists and immigration is giving rise to a new generation of 'iron curtains'
Never mind what you're wearing, it's what you're reclining on

Never mind what you're wearing

It's what you're reclining on that matters
General Election 2015: Chuka Umunna on the benefits of immigration, humility – and his leader Ed Miliband

Chuka Umunna: A virus of racism runs through Ukip

The shadow business secretary on the benefits of immigration, humility – and his leader Ed Miliband
Yemen crisis: This exotic war will soon become Europe's problem

Yemen's exotic war will soon affect Europe

Terrorism and boatloads of desperate migrants will be the outcome of the Saudi air campaign, says Patrick Cockburn
Marginal Streets project aims to document voters in the run-up to the General Election

Marginal Streets project documents voters

Independent photographers Joseph Fox and Orlando Gili are uploading two portraits of constituents to their website for each day of the campaign
Game of Thrones: Visit the real-life kingdom of Westeros to see where violent history ends and telly tourism begins

The real-life kingdom of Westeros

Is there something a little uncomfortable about Game of Thrones shooting in Northern Ireland?
How to survive a social-media mauling, by the tough women of Twitter

How to survive a Twitter mauling

Mary Beard, Caroline Criado-Perez, Louise Mensch, Bunny La Roche and Courtney Barrasford reveal how to trounce the trolls
Gallipoli centenary: At dawn, the young remember the young who perished in one of the First World War's bloodiest battles

At dawn, the young remember the young

A century ago, soldiers of the Empire – many no more than boys – spilt on to Gallipoli’s beaches. On this 100th Anzac Day, there are personal, poetic tributes to their sacrifice
Dissent is slowly building against the billions spent on presidential campaigns – even among politicians themselves

Follow the money as never before

Dissent is slowly building against the billions spent on presidential campaigns – even among politicians themselves, reports Rupert Cornwell
Samuel West interview: The actor and director on austerity, unionisation, and not mentioning his famous parents

Samuel West interview

The actor and director on austerity, unionisation, and not mentioning his famous parents
General Election 2015: Imagine if the leading political parties were fashion labels

Imagine if the leading political parties were fashion labels

Fashion editor, Alexander Fury, on what the leaders' appearances tell us about them
Phumzile Mlambo-Ngcuka: Home can be the unsafest place for women

Phumzile Mlambo-Ngcuka: Home can be the unsafest place for women

The architect of the HeForShe movement and head of UN Women on the world's failure to combat domestic violence