Thomas Cook Group is moving into the burgeoning Russia travel sector by paying up to $45 million to take a majority stake in travel giant Intourist.
The joint venture in which Thomas Cook will have a 50.1% stake will include Intourist’s outbound, domestic and inbound tour operating operations as well as its retail travel network.
It will focus on expansion in Russia and the other CIS countries.
The business is expected to require $30 million to $40 million over the next four years to fund the integration and growth.
Intourist carried more than 650,000 passengers last year, with numbers up by 30% in the nine months to September 30.
The company, formed in 1929 and privatised in the early 1990s, has a network of 144 shops covering large parts of the country.
Together with Thomas Cook, it sees an opportunity to grow sales by expanding controlled distribution in Moscow, St Petersburg and in the regions, a statement said.
Intourist had pro forma sales from operations within the scope of the joint venture of $324 million and EBITDA of $5.3 million last year.
For 2008, pro forma sales were US$405 million and pro forma EBITDA was US$12.5 million. The decline in 2009 resulted principally from the impact of the financial crisis on the Russian tourism industry.
More than six million Russians went on overseas package holidays last year and the market is expected to grow by a double-digit percentage in the coming years given increasing wealth amongst Russia’s population of 142 million and strong economic growth driven by the natural resources sector, according to Thomas Cook.
Thomas Cook group chief executive Manny Fontenla-Novoa, unveiling the deal a week ahead of announcing annual financial results, said: “The move into Russia is in line with our established strategy of capturing growth in emerging markets.
“I am glad we have taken our time to secure a strong partnership and a financially attractive transaction.
“Together with Intourist’s strong management, we see huge potential to establish a leading position in the market and to grow sales and profits by leveraging Intourist’s local market knowledge, Thomas Cook’s scale and strength in key destinations and our combined tour operating expertise.”
Intourist’s management team will continue to run the business day-to-day under the leadership of president Alexander Arutyunov, strengthened by selected Thomas Cook representatives, including a new CFO, who will be appointed shortly.
Denis Wathier, CEO of Thomas Cook France, will become chairman of the joint venture board.
Thomas Cook will control the board and consolidate the business and it will be reported as part of Thomas Cook’s West and East Europe segment under the leadership of Thomas Döring.
Thomas Cook’s scale in accommodation purchasing in key destinations, as well as its product know-how and IT systems will be utilised in the joint venture.
This will enable the joint venture to improve its product offering and expand the destinations covered which is expected to drive future sales growth and profitability.