First Choice Holidays led with two deals worth a combined total of pounds 134m. It is paying pounds 110m for Unijet, the tour operator which specialises in package holidays and also controls an airline and car rental business. First Choice is paying a further pounds 24m for Hayes & Jarvis, the upmarket travel company which offers more expensive long-haul trips to destinations such as the Maldives, Africa and the Far East.
Separately, Thomas Cook's Sunworld holiday business is acquiring Flying Colours, which owns the Club 18-30 holidays famous for their racy image. The deal also includes the Flying Colours airline. Though the sum was not disclosed, analysts suggested a possible price tag of pounds 65m. Flying Colours was previously owned by a group of venture capitalists led by NatWest Equity Partners.
Two factors are driving the buying spree. The first is the continuing concentration of the travel industry, a development which has been assisted by the recent Monopolies and Mergers Commission report on the industry which did not force tour operators to sell or dramatically reduce their travel agency operations. The second is the growing trend towards long- haul holidays to destinations like Florida and the Caribbean at the expense of the more traditional package holidays to the Mediterranean.
In market-share terms, recently-floated Thomson is still the largest player with 25 per cent of the UK's all-inclusive air holiday market. Yesterday's deals take First Choice to within touching distance of Airtours, which is still in second place with 18.2 per cent. First Choice now has 15.4 per cent, with Sunworld on 8 per cent.
Nigel Hand, managing director of Thomas Cook's Sunworld division, said the deal was in line with the group's aim to become one of the UK's top three tour operators.
First Choice Holidays chairman, Ian Clubb, said yesterday: "The industry has congealed into four lumps that will dominate the market. Three of them are public companies and so are less likely to start a price war. It should lead to less volatility. But we don't think it will be bad for consumers. There are four big gorillas out there, and they are still going to compete with each other fiercely." He added that there were relatively few other medium sized companies to snap up: only Cosmos and Inspirations have shares of more than 1 per cent outside the big four.
The scramble for market shares is underlined by the fact that Airtours and Carlson, the US group, were bidding for Unijet. First Choice considered buying Flying Colours but its offer was turned down.
Peter Long, managing director of First Choice, said the travel market is moving towards a small group of larger players which will co-exist with smaller specialists. "Smaller companies are questioning their future and wondering how they can grow. This is why some of them are selling up."
The First Choice deals net huge fortunes for the vendors. Chris Parker, the founder of Unijet, owns half the business and will net pounds 55m. The business achieved profits last year of pounds 10.2m on sales of pounds 308m. "He will work for us for a year abroad," Mr Clubb said.
Hayes & Jarvis is wholly owned by its original founders, Tom and Melba Correira, a husband-and-wife team of Ugandan origin who established the business 20 years ago. It recorded profits of pounds 2.7m on sales of pounds 51.7m last year.
The two First Choice acquisitions underline the growing trend towards long-haul holidays. Figures provided by Stats MR show that over the last four years long-haul holidays have showed compound growth of 12.3 per cent. This compares to a 1.4 per cent fall in the short haul market. "Customers are getting more discerning, more experienced and more adventurous," says Mr Long. "Newer destinations like the Caribbean and Mexico are very attractive."
The problem for the larger tour operators is that they have been under- represented in long-haul holidays. For example, while Thomson has 25 per cent of the UK holiday market, its share of long haul is only 14 per cent. They have all been trying to gain share. Airtours has an upmarket long- haul company, Tradewinds, Thomson has Thomson a la Carte, and First Choice has the former BA business, Sovereign.
First Choice is funding its two deals via a 10-for-38 rights issue at 130p per share which will raise pounds 95m. It is also issuing pounds 34m of new First Choice shares to the vendors of Unijet. Mr Clubb said the deals should offer synergies which would enhance profits by pounds 5m. Gains would also come from integrating Unijet's Leisure International Airways with First Choice's Air 2000 airline.
First Choice's half-year results showed a lower interim loss of pounds 17.8m compared to pounds 22.8m the previous year. Profits in the UK rose by pounds 3m.
The company said 1998 summer bookings are 8 per cent ahead of last year. That will result in less late discounting and better margins, it said. For the winter 1998/99 season bookings are 21 per cent ahead of last year. No increase in overall capacity has been booked for next winter. First Choice said the travel industry was learning that piling on capacity only to be forced into heavy discounting was a recipe for financial disaster.Reuse content