First Choice still talking over mainstream operations

First Choice is continuing talks over the future of its mainstream tour oparating division.

Announcing annual results which saw a 2% rise in pre-tax profits to £117.2 million from £115 million the previous year, the company said: “The board is considering a range of alternatives in this market and discussions with a number of parties are at a preliminary stage.

“There can be no certainty that any transaction will be forthcoming.”

MyTravel has admitted having discussions with First Choice over the mainstream division, while Thomas Cook has also been linked with the business.

But the statement from First Choice did little to elaborate on confirmation of press speculation on November 27 that it was revewing the future of the mainstream arm.

First Choice said the mainstream divison was outperforming the market, although its operating profits for the year ending October were down by 7% to £53.7 million from £57.5 million the previous 12 months due to an “unprecedented level of external events”. High season bookings were delayed as a result of bird flu scares, the World Cup and the UK heatwave in July.

Looking forward to summer 2007, the company said the mainstream sector was still suffering from the events of this year, particularly the thwarted terrorist attacks in August.

Mainstream is 13% down on customers, an improvement from an 18% decline six weeks ago, and 5% down on sales. This is against a market cumulatively down by 14% with sales down by 11%, according to AC Nielssen Travel Track figures.

First Choice has reduced capacity in short and medium-haul programmes in line with anticipated demand, with overall capacity remaining flat year-on-year.

This winter’s market remains “challenging” with mainstream volumes down 1% with sales up by 15% due to a refocus on long haul holidays. Demand for long haul remains strong, with volumes up 26% and sales up by 40% on capacity increased by around 25%.

Specialist holidays recorded an operating profit of £33.6 million, up from £31.5 million in the year to October 31, while activity holidays achieved an operating profit of £26.7 million, up from £17 million.

The operating profit for online destination services was £14.4 million, up from £11.4 million while the Island Cruises joint venture with Royal Caribbean saw operating profits rise to £5 million from £3.5 million.

First Choice said it was on target to achieve 75% of sales through its own distribution channels in two years time, up from 63% this summer.

The statement said the group had recognised for some time that to remain successful in the mainstream tour operating segment of the market in the UK it would need to reduce its exposure to the increasingly commoditised short-haul sector and be able to offer a more differentiated range. 

Looking forward, the company said: “As we enter the key booking periods for both winter and summer 2007 holidays, it is clear that our portfolio of businesses continues to outperform the market.

“Our business model is consistently evolving to ensure we maintain flexibility, and continue to offer our customers the range of differentiated and exclusive leisure travel experiences they desire.

“We are confident our combination of organic and acquisition-led growth will continue to generate superior returns and enhance shareholder value as the platformwe have established delivers sustainable long-term growth.”

Report by Phil Davies