On the Beach’s £20-million acquisition of UK luxury tour operator Classic Collection makes a lot of sense. It is also doubly worthy of note.
An OTA buying a tour operator sold through high street and homeworker agents is obviously noteworthy, for all that it’s not a click business moving into bricks.
A B2C business moving into B2B with a portal solely for travel agents is also worth noting.
So what is the rationale? The reasons were clearly stated in the statement the online travel group issued on Thursday.
First, it allows On the Beach to expand. The UK company notes the acquisition will “leverage access [to] the five million short-haul beach holidays booked offline” each year in the UK.
Second, the group will invest in an “online booking portal” for travel agents, called Classic Online, which will extend Classic product to those “mainstream beach holidays”.
On the Beach already has the technology and “product sourcing” for this.
Third, the OTA’s offer should appeal to travel agents pondering how to sell dynamically packaged holidays without taking on the liabilities of a tour operator or ‘travel organiser’.
The group notes the EU Package Travel Directive and associated Package Travel Regulations which came into force in July mean independent agents “take on onerous responsibilities that make it increasingly difficult to dynamically package holidays cost-effectively”.
Hey presto, “Classic Online will be the package organiser” for these agents. On the Beach, a package organiser itself, already has everything in place for this.
We can quibble about just how “onerous” these responsibilities are or how “increasingly difficult” it is to meet them, but the pitch makes perfect sense.
What makes less sense is a report by news agency Reuters on the trading statement On the Beach issued along with news of the acquisition.
This noted On the Beach remains on track to meet its forecasts.
Reuters reported: “Its business model is shielded from the impact of hot weather which has hit bigger rivals TUI Group and Thomas Cook.
“Fewer people have bought holidays, particularly the higher-margin, last-minute bookings [and] that has dented the likes of TUI and Thomas Cook.”
Reuters quoted On the Beach chief financial officer Paul Meehan as saying: “The agility of the On the Beach model comes through in times when demand is less.”
Leave aside the fact that last-minute bookings are not higher margin if ‘distressed’, this is odd because both TUI and Thomas Cook reported increased sales for this summer.
TUI reported “current booking levels ahead of the prior year despite the prolonged hot summer” with a 4.4% increase in customers and most of the programme sold. That is not “less demand”.
Thomas Cook reported group summer 2018 bookings “up 11% on last year”. UK summer bookings were up less at just 1% to late July, but at an average selling price 7% higher than in 2017. That does not sound like less demand either.
Both major groups suggested the heatwave in Europe would dent late summer bookings and therefore impact their fourth-quarter results.
But both reiterated pretty much their previous guidance on full-year profits.
TUI stuck to its forecast of a 10% operating profit while Thomas Cook forecast an operating profit within the expected range but “at the lower end”.
How is this so different from On the Beach’s declaration that “the exceptionally hot weather has impacted our headline revenue growth”, but the group “continues to expect adjusted profit before tax for the financial year will be broadly in line with management expectations”?
So it presented the same outlook as TUI and Thomas Cook.
More:
On the Beach acquires Classic Collection
Big Interview: On The Beach to tap into enduring popularity of agents
Reuters: Holiday retailer On the Beach shrugs off impact of hot summer