View from City Road: Cloud on the Airtours horizon is the OFT

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The Independent Online
Airtours yesterday showed the Office of Fair Trading what it thinks about the investigation into the holiday industry's retail practices by buying Aspro Travel, which has a 4 per cent share of the package tour market.

The company, which spectacularly failed to fulfil its aspirations to become Thomson's main rival when its bid for Owners Abroad was defeated, is not going to stand still while the OFT investigates the industry.

As well as expanding by acquisition, the company is continuing to boost its profits by exploiting its vertical integration, by pushing Airtours' holidays in its own shops and by ensuring its aircraft seats are filled first. It ought to be more worried about the OFT investigation than it appears to be.

Yesterday's results for the six months to 31 March suggest the approach is working for Airtours, even if it does not appeal to the competition authorities. The half-year, a seasonal nightmare for tour operators, saw operating losses rise from pounds 5.5m to pounds 6.9m, but that included a pounds 2.2m deficit from Pickfords. The underlying reduction in losses from the airline and tour operations reflects an increase in the company's share of the winter market from 12.6 to 14.5 per cent. That performance will improve again next year, with Airtours taking the plunge in the ski market.

Prospects look very good. The recent purchase of the Hogg Robinson estate agency business has yet to be integrated, and Aspro widens the company's horizons on a couple of fronts.

The purchase gives Airtours access to customers in the South-west, South Wales and Northern Ireland and bolsters the company's activities in the Mediterranean - particularly in the eastern outposts such as Cyprus.

Meanwhile, summer season bookings, largely thanks to the purchase of the Pickfords chain of travel agents, are 23 per cent higher than a year ago and the airline is achieving better load factors than any other in the UK.

Taxable profits of pounds 47.5m seem likely for the full year, against pounds 36.5m last time. That implies an undemanding p/e of 10.5 on the shares, up 6p to 334p yesterday. The dark cloud for investors, though, is the OFT which does have the authority to call for a full blown Monopolies and Mergers Commission investigation, something that is long overdue.