| Journal: TWUK | Section: |
| Title: | Issue Date: 04/09/00 |
| Author: | Page Number: 8 |
| Copyright: Other |
Analysis
Airtours banks on clear water after Costa coup
The operator has done well out of the Costa sale but what will it mean for the industry? Tanya Jefferies reports
AIRTOURS has cleared a handsome profit on the sale of its 50% stake in Costa Cruises to co-owner Carnival Corporation.The operator’s investment in Costa since 1997, with acquisition costs, has been £84 million. But it will rake in £350 million in cash as a result of its disposal.
The company claims this is a good time to take a step back from cruising, describing it as a “non-core business”.
It seems to have calculated that although Costa is presently a profitable company – it contributed a pre-tax profit of £31.6 million to Airtours’ bottom line in the year to September 1999 – the outlook for the cruise industry is uncertain.
Fourteen ships will be launched this year alone, and a total of 50 are scheduled for delivery over the next five years, a scenario which has led to fears of overcapacity and huge plunges in the share prices of leading cruiselines (Travel Weekly July 3).
Announcing the sale of Costa, Airtours stated: “Against the background of an increasingly competitive European cruise market, Airtours believes that for Costa to maintain its market position, it will be required to continue to increase its capacity through investment in new ships.”
The operator pointed out that US cruiselines have increased their passenger capacity in the Mediterranean by some 22% in the 1999-2000 period.
And Costa, which launched the 2,154-passenger Costa Atlantica earlier this summer, announced last week that it had ordered a £237 million sister ship.
A City analyst backed Airtours’ decision to sell Costa, saying: “It has been a fantastic investment from the moment Airtours bought it. But Airtours has made it clear for some time that Costa is not a core part of its business. It’s no surprise it decided to sell.”
However, he did not believe the cruising industry is facing insurmountable problems.
“People have been predicting the decline of cruising for years because of the amount of capacity coming on but it has always been absorbed,” he said.
Airtours still retains its in-house cruising operation, Sun Cruises, and claims it will be unaffected by the sale of Costa.
It explains that Sun Cruises, which supplies flycruise packages to its in-house operators, works in a different market segment from Costa.
However, Peter Wild, managing director at independent cruise consultancy GP Wild, said: “Sun Cruises has now got to be seen as a marginal business as far as Airtours is concerned. It has done well and given Airtours an understanding of cruising. The question in the long run is whether Airtours needs Sun Cruises if it has access to berths through Carnival.”
Meanwhile Carnival, which owns multiple cruise brands as well as holding a 26% stake in Airtours itself, must be optimistic about the future prospects of cruising if it thinks it worth paying £350 million in cash for Costa. But Carnival, like leading rivals P&O Cruises and Royal Caribbean Cruises, has seen its share price fall by around 60% this year. And last week, the company was forced to issue a second profits warning following the cancellation of more cruises due to ship repairs.
It has agreed not to sell or acquire any Airtours shares for a year after the Costa transaction is completed, except in certain limited circumstances. And this is hardly surprising when it has its hands full with its cruising interests.
The question that remains is how Airtours plans to spend the money raised from the disposal of Costa.
It will need a hefty investment to sort out its problems in Germany. In addition, the group is considering further acquisitions, developing TSI’s business in the US and expanding its e-commerce operations.
Separately, it has stated its intention to buy more hotel stock, which is another option.
Grand designs: Costa is pressing ahead with investments, including a £237 million sister ship for the newly launched Costa Atlantica
What the company owns
Airtours
Tour operators: Airtours, Aspro, Direct, Panorama, Jetset, Manos, Bridge, Cresta, Tradewinds, Eurosites, Leger, Ving, Always, Saga, Spies, Tjareborg, Trivsel, Globetrotter, Sunair, Vakaritie Toppers, Voyages Conseil, FTi, Berge and Meer, Sunquest, Suntrips, Vacation Express and Alba Tours.