Evolution - the newly created travel giants must adapt to surviveThe speed with which travel’s big four announced mergers to create a big two has prompted some cataclysmic language over the last couple of months.

After the original Thomas Cook/MyTravel deal a Travel Counsellors’ recruitment advertisement likened such giants of the travel industry to dinosaurs, and chairman David Speakman drew on Charles Darwin when he said: “It’s not the strongest of the species that survive, nor the most intelligent. It’s the most responsive to change. Is Thomas Cook changing or just getting bigger?”

Shock to the system

Building on the theme, On Holiday Group chief executive Steve Endacott compared last week’s surprise revelation of a TUI/First Choice merger to a meteor hitting the earth.

The question is, which species of travel company will this meteor wipe out, and can the lumbering giants, whose position some consider to be precarious, compete with smaller, quicker challengers that look increasingly able to run rings around them?

Conceding that it was these voracious young upstarts who were taking market share from the big players, First Choice chief executive Peter Long explained the background to the decision to join the race for consolidation last week.

It was, he said, these companies and the dynamic packaging environment they have spawned that has forced consolidation, and their impact will also be used to justify a a big two to the competition authorities.

“The industry map has changed significantly over the last five years, and will change again, and if you do not adapt all you will do is shrink,” said Long.

“You have numerous tour operators within the traditional sector, you have the big four and then you have what’s going on outside of us like the low-cost airlines, which have taken a huge amount of business from us, firstly with flight-only then with dynamic packaging.”

In what turned out to be an prescient comment, given announcements this week from Ryanair and EasyJet about enhancing their online holiday products, he added: “EasyJet already offers hotels so you can component-build and Ryanair is already looking to come into that space. These are well-financed businesses. EasyJet is about to become a FTSE 100 company and Ryanair is even bigger.”

Long’s view of how the new TUI Travel Group he is set to run will become fit for the future is simple – it comes down to those eternal business objectives of margins, profitability and efficiency.

“You have to be efficient because that is the only way to compete against the whole cross section of different competitors,” he said.

“Are we going to increase prices? Absolutely not. Even if we did the consumer would not buy it. The only thing you have to ensure is you run your business in the most efficient way. Consumers demand value, that’s the world we live in.”

Increasing margins

Long’s success in driving up margins at First Choice towards the magical 5% has been matched by the efforts of Thomas Cook UK chief executive Manny Fontenla-Novoa, but Thomson survives on just 2% and MyTravel has only just broken even in the UK.

The end of skinny margins will be a priority for Long in his new position at the helm of what will become Europe’s largest tour operator and, like the merged Thomas Cook/MyTravel, a FTSE 100 company in its own right.

“The opportunity we have now is to improve margins. Clearly, large-scale businesses that are on very low margins are a high risk from an investment perspective.

“TUI has made significant investments in its infrastructure and has a number of plans which will result in those investments showing increased returns. There is a big prize for us there.”

One of the major worries for the big four will be that while the work goes on to bring their operations together and while thousands of employees fret over their future job the day-to-day running of the business suffers.

However, speaking to Travel Weekly at the beginning of our Dynamic Packaging Month, even Endacott, that most vocal champion of dynamic packaging, refused to rule out the possibility of the big four, or the big two as they may soon be known, adapting to survive.

“The traditional tour operators have the wealth and the knowledge and the people and you cannot assume for a second that they won’t evolve,” he said.

“You dynamically package and survive or you don’t and you die. It really is like that. The big operators are going to get it and if you are an independent agency you have absolutely no choice. I would say that – but I think it’s getting more and more true by the day.”