TUI/First Choice deal leaves holidaymakers in the cold

Comment by Jeremy Skidmore (www.jeremyskidmore.com)

The TUI/First Choice merger will be of little benefit to holidaymakers and is a disaster for the staff who will lose their jobs. But it is an excellent move for the companies and, interestingly, their rivals.

For years, holidaymakers have benefited from overcapacity in the market, with four giants slugging it out and discounting until their hearts’ content.

Co-operative Travel Trading Group chief operating officer Mike Greenacre predicts cheaper package holidays from the deal. Is he having a laugh? They could hardly be any cheaper.

These two will consolidate in popular resorts and reduce capacity in certain areas. Of course they’re not talking about pushing up prices, because the competition authorities are watching closely. But it’s a natural market condition following consolidation. They’re doing the deal to make money, not give it away.

Holidaymakers may even have to pay a realistic price for packages for a change, but it shouldn’t give them too many sleepless nights. Competition is so intense, they’ll still be able to fly abroad for a relative pittance. That, incidentally, is why I expect the deal to get the green light. A merger of such big players would have been laughed out of court ten years ago, but times have changed.

It’s also a lot of nonsense to say that customers will benefit from the combined companies offering better quality holidays. You can already buy quality holidays from these operators and their subsidiaries. I can’t see much changing in that area.

Many staff will lose out because there are bound to be massive job cuts. The main reason for crunching together two companies is to take out costs and cut out duplication. The two companies believe they can achieve pre-tax cost benefits of at least £100 million per annum by merging.

But it’s a great deal for the two operators, particularly as TUI has focused on beach operations and First Choice has concentrated on building up their portfolio of specialist businesses. And, of course, because of those cost savings that will be achieved.

The deal was also very necessary. You may have noticed that TUI Northern Europe, which includes TUI UK, saw 2006 profits fall to 81 million euros from 103 million euros the previous year. Without consolidation, increasing profits would become ever more difficult to achieve. 

So, the two companies’ bank managers must be putting on their mickey mouse ties and dancing around their offices.

Meanwhile, we’ve heard that Peter Rothwell will be deputy to Peter Long, which should be fantastic fun to watch. Both have undoubtedly done excellent jobs, but I bet Peter R wouldn’t have expected to be deputy to anyone again. Peter L will have got the nod because he is such a respected figure in the city after years of consistent performance and a strategy, of building up specialist businesses, that has largely paid off.

I also think there are great opportunities for others in the market. These two companies will be inwardly focussed while they sort out their merger and may well take their eyes off the ball in mainstream tour operating. Also, any reduction in capacity is good for all players.

Furthermore, they are talking about Expedia and Travelocity as the new competition – a comment that sounded weirdly like something from a 1999 ABTA Convention – rather than any other operators.

Meanwhile, hundreds of agents will disappear off the high street, easing the pressure on those that remain.

Yes, TUI/First Choice will be a formidable monster. But if I was a competitor I would be secretly delighted by the merger.