AIRTOURS’ acquisition of the Bellevue hotel in Majorca has highlighted one of the most important issues facing tour operators – the need to secure beds.
To get its hands on the 1,474 apartments in Alcudia, Airtours was forced to enter a closed auction with rivals from across Europe, all equally anxious to tie up definite accommodation.
The fact it forked out £63.4m – described as vastly overpriced by industry observers – is proof that Airtours is prepared to pay what it takes for long-term security.
Behind the bidding war lies a diminishing number of bed nights to satisfy the demand of the major European players.
This shortage is at its most acute in the Canaries and Balearics. And as hoteliers cash in, prices are starting to rise.
As well as the competition, operators are being stifled by strict building regulations as Spanish authorities attempt to limit environmental damage.
New hotels can be developed but only to replace those that have been demolished. To offset the problem, Airtours last year acquired land at Las Meloneras in Gran Canaria and La Caleta in Tenerife where it intends to build two 500-room hotels.
Group managing director Tim Byrne said the Bellevue will largely benefit its German operation, FTi. In turn, FTi is battling for space against larger German opposition -ÊPreussag-owned TUI, the sister company of Thomas Cook, and Condor.
“Historically, hoteliers have dealt with TUI and Condor which means FTi has to take a bigger risk by guaranteeing beds and paying upfront,” said Byrne. “We need to control our own stock, hence the acquisition of Bellevue.
“In Scandinavia and the UK the balance of beds and customers is where we need them. But that could change and we need long-term access. TUI and others are looking around and beds we have may disappear.”
Byrne said the aim is to control 20% of its capacity through acquisition, strategic alliances or partnerships. It currently controls just 8%.
The acquisition of the Bellevue, which gives Airtours 1m bed nights during the summer, is a particular blow for Condor which is believed to have access to 50% of its beds.
But Byrne said there could be room for co-operation.
“If they are prepared to give us allocations where we are not represented, we could come to an agreement,” he said.
Analysts said the battle for accommodation is very much between the German and English markets – with the Germans well ahead of the game.
“The game is getting tougher and those who are not investing will start to find it extremely tough,” said one. “The UK beat the Germans for a change when Airtours acquired the Bellevue and while it’s been said that Airtours paid over the odds, I suspect that like the housing market, it will look like a bargain in a couple of years’ time.
“The key driver in the industry today is the control of content. In the 1980s it was airlines, in the 1990s it was distribution and now its accommodation.”
Another analyst said hoteliers have operators over a barrel.
“They can sit back and watch operators try and outbid each other for their beds. Hoteliers in the Canaries are particularly transient and will take the highest bidder, irrespective of historical relationships. Product is king and the hotelier knows it.”
Industry observers said the crucial factor is filling aircraft.
“You can’t fill aircraft if you don’t have beds and the airline is where the money is made,” said one. “For Airtours, the Bellevue is worth four of five full aircraft a week which is worth a fortune.”
First Choice group chief executive Peter Long admitted it is also looking to take greater control of its bedstock but stressed it was looking more towards partnerships than acquisition.
“We do not have the skill factor in hotels,” he said at the group’s results in December.
First Choice overseas director Richard Prosser said the Balearics in particular is becoming tough. “There is a trend to secure long-term deals with hoteliers,” he said. “But it’s not just a UK affair. We are keeping an eye on markets across Europe trying to do the same.”
The squeeze has led to speculation that operators are courting Spain’s largest hotel chain, Sol Melia which has 365 properties worldwide. But analysts remain sceptical the chain will align itself to one company.
“It is very unlikely to do a deal with just one operator. Putting all your eggs in one basket is a risky strategy for any hotel chain, no matter how reliable the operator is. It will start striking selective deals, like the joint venture it has in Tenerife with Airtours.”