TUI confirms merger with First Choice

Thomson parent TUI is merging its tour operations with First Choice to create Europe’s largest tour operator.

The deal follows Thomas Cook merging with MyTravel and will result in consolidation of Europe’s mainstream tour operating businesses from four to two.

German TUI AG will take at 51% in a business to be called TUI Travel, based in the UK. First Choice would take the remaining 49% with chief executive Peter Long running the merged company and TUI Northern Europe CEO Peter Rothwell becoming his deputy.

The new look group would have 27 million customers in 20 source markets, sales of £12 billion and a market value of more than £3 billion. The combination of the two groups will bring more than 200 brands under a single umbrella.

TUI Travel will be listed on the London Stock Exchange once the deal is completed by the third quarter of the year – subject to regulatory approvals 

But £100 million cost savings a year as part of the deal will raise the prospect of further industry job losses. A joint statement said “cost synergies” are expected to arise mainly in the UK – where both companies run separate headquarters in Luton and Crawley and each has rival travel agency chains. 

The companies outlined a list of eight areas where savings will be made, including consolidation of retail, call centre and administrative costs; streamlined distribution (including shops); higher internet traffic; reduced marketing and commercial costs; airline flight planning and operating; destination cost efficiencies and yield improvement. 

First Choice, which employs more than 15,000 staff and operates 34 aircraft, had been talking to both MyTravel and Thomas Cook about the sale of its mainstream tour operating arm until the two rivals agreed to get together less than a month ago.

TUI has a fleet of 127 aircraft and following the merger the new company will retain a majority of the TUI hotels and resorts business, operating 279 hotels with 164,844 beds.

The deal came as TUI reported 2006 turnover of 20.5 billion euros, up from 18.2 billion euros, but a pre-tax loss of 736 million euros against a profit of 387 million euros in 2005. 

TUI Travel will focus on four areas:

*Content – mainstream package holidays, including long haul, a specialist portfolio of niche businesses and a significant bed adn flight bank accessed vai the internet.

*Distribution – the new group will “maximise interent sales and content” while building dtrong brand awareness and loyality through its portfolio of large consumer brands.

*Cost competitiveness – it will introduce a flexible leasing structure to its European aircraft fleet, “leveraging the low overheads in the specialist portfolio”.

*Acquisition – group will continue to invest in small to medium-sized bolt-on acquisitions within specialist segments in order to build leadership positions in higer margin niche areas. 

Current TUI Northern chief financial officer Will Waggott will become group commerial director of the new company while Hapag-Lloyd Flug chairman Christoph Mueller will become aviation director. First Choice group finance director Paul Bowtell will be chief financial officer. 

TUI CEO Dr Michael Frenzel, who will become non-executive chairman of the new group, said: “The combination of First Choice’s fast growing specialist businesses and our strong momentum in the mainstream sector creates a solid platform from which to accelerate growth opportunities.”

First Choice chairman Sir Mike Hodgkinson, who will be deputy chairman, said: “This proposed merger provides us with a unique opportunity to leverage the strengths of both First Choice and TUI to create one of the world’s leading travel groups.

“In addition to the significant opportunity to enhance margins, we believe the combination of brand leadership and management expertise that this transaction creates will deliver sustainable, long-term growth for shareholders and a group that satisfies the rapidly changing travel needs of our customers.”

by Phil Davies