What lies behind efforts to consolidate among independent agencies?


The pressures driving consolidation are similar to those that led to the restructuring at the top of the industry – the mergers of TUI/First Choice and Thomas Cook/MyTravel.


There is a fear the big two might ditch or downgrade the independent sector, signing deals with some agencies but excluding others. In the words of one agency owner: “If a business has a single office with a turnover of £1 million, why would TUI bother with it?”


Former Worldchoice board member Chris Bailey, owner of Bailey’s Travel, said: “In the past, independent agents’ best hope of staying in business was as a secondary distribution channel [for the major groups]. Now these have online distribution and can get enough additional distribution through selective deals.


“Worldchoice is losing members. That is why the Global deal or a deal with the Travel Trust Association is crucial.”


Why do Global and Worldchoice want to set up Triton Travel Ltd?


The Worldchoice board has consistently described the proposed deal with the Global Travel Group as a merger. But one Worldchoice shareholder labelled it a merger only “in the sense that Poland merged with Germany in 1939. It is a takeover by Global.”


Global will buy up the stakes of Worldchoice shareholders, giving founder George Begg access to an enlarged distribution network.


The deal has been delayed in part by the difficulty in finding court time to complete the legal process, but it should still go through. It is attractive to Worldchoice shareholders who should receive more for their shares than if things stayed as they are.


Shareholder Chris Bailey, said: “It is not such a good deal for ordinary members, but the fundamental benefit will be staying in business. Agents’ future viability is based on the last 1%-1.5% of commission on sales. Without a robust negotiating position, you won’t get that.


“Without access to a good dynamic-packaging system you will have 11% margins instead of 15% and won’t stay in business.”


Triton Travel Group also includes Advantage. What led it to join?


“There was a recruitment war,” said one consortium member. “Global members were the softest targets and Worldchoice went after them. George Begg retaliated, everyone began to buy members. No one came out a winner.”


A tripartite agreement between Worldchoice, Advantage and Global followed talks to end the poaching and produced the joint commercial organisation that is the Triton Travel Group.


“Worldchoice chairman Colin Heal and Global founder George Begg realised this was the way forward, with Triton’s tour-operating product and dynamic packaging,” said the same member. “Begg decided he needed more control to make the relationship work better.”


That resulted in moves to bring the three groups together as Triton Travel Ltd.


What made Advantage pull out of the merger?


Advantage withdrew this summer, citing concern at the proposed equity share and unequal profit sharing. It also feared pressure on members to sell in-house product.


The three groups have very different structures. Global agents are mostly franchise-holders and, prior to last week’s takeover, Global remained under the control of founder and principal shareholder George Begg.


Worldchoice policy is determined by chairman Colin Heal and the board elected by shareholders. Former board member Keith Wilson, architect of the shareholder scheme, holds 25% of the shares.


Why has the TTA made an offer to Worldchoice?


The TTA insists its exploratory offer is genuine, but may expect some Worldchoice members to opt for it even if the board does not.


There is suspicion the TTA may have had encouragement from Worldchoice. However, TTA director Todd Carpenter denied this, saying its interest crystalised about five weeks ago.


The TTA’s offer price is higher than Global’s to appeal to shareholders, but it also aims at the wider membership. Carpenter suggested the TTA would help agency managers buy out businesses when owners retire and provide funds for members to expand by acquiring other businesses.


He said: “Triton members sell Triton product. Our philosophy is different. We will provide member services rather than build someone else’s tour operation.”
 
Worldchoice shareholder Chris Bailey argued the TTA could be left marginalised by the Triton deal. Carpenter denied this, but conceded the association is recruiting only to stand still as the independent sector shrinks.


Does the Stella Group’s takeover of Global change anything?


Stella is the biggest travel group in Australia and New Zealand and has acted to build its market share in the UK, where it owns Harvey World Travel, Travel 2/4 and Travelbag.


It describes itself as a vertically integrated group – controlling both the supply and retail of travel – and will see Worldchoice agents as outlets for its product. TTA director Carpenter suggested: “Worldchoice members will have no say in how Stella is run or how it runs things.”


Details of the deal to buy Global remain undisclosed, but Stella may have paid in excess of £100 million and will expect a return on the investment. Worldchoice members broadly welcomed the news, believing Stella’s access to funds to be an asset.


But Carpenter argues: “Someone has to pay for the acquisition and it will come out of agency earnings.”