Stella UK sees profits double

Stella Travel Services UK has almost doubled annual pre-tax profits following a business overhaul which has seen Travel 2 return to profit for the first time in a decade.

The travel group, which owns tour operation Travel 2, retailers Travelbag and the Global Travel Group, reported EBITDAE (earnings before interest, tax, depreciation, amortization and exceptional items) of £2.7 million, up from £1.4 million year-on-year, for the year ending June 30, 2011.

Despite profits being up turnover for the UK arm of the private equity-owned travel business fell 3% from £184 million to £178 million as the economic downturn continued to bite.

Chief executive Andrew Botterill said the group had exceeded expectations. “We put together a plan three years ago to integrate the UK businesses in what has been a tough trading environment. The plan was to take the business from a loss of £17 million into profit. To be where we are today is really pleasing,” he said.

Fixed operating costs have been reduced by £4 million over the last year by the group, which has more than £7 million in additional working capital available from shareholders to invest if necessary.

The group has reduced its headcount by around 10% and completed a complete overhaul of Travel 2, which has included changing commercial terms with suppliers and reducing how many it works with, altering back office systems and administration and broadening its product range.

“Travel 2 is now more focused on working with people that want to work with us and putting volume into air or hotel partners where we can secure mutually beneficial agreements. It sounds easy but it takes a couple of years to re-establish your name and your business given we had a tough start,” said Botterill.

Travel 2 is already moving into new markets of business travel and escorted touring and is poised to launch a dedicated luxury brand, he added. Plans for the rest of the group include expanding long-haul specialist high street retailer Travelbag, which currently has eight shops, by adding five branches within the next 18 months.

However, Botterill admitted the conventional high-street travel agency market was likely to contract in the next five years. He predicts the group’s 450 Global and Independent Options members will decline by 10% to 15% in that time.

He said: “It remains a part of the business that will be increasingly difficult to participate in if you do not differentiate what you do. Our top 30 members have seen year-on-year business increase. They have moved their business over the last five years away from being reliant on packages to tailor made products.”

Stella UK has also not ruled out an acquisition or merger of the business “if the terms are right”. “My belief is that the expectation of some vendors in the current UK market are too high.

Our primary focus is on our own business but we do believe consolidation of the market is inevitable and we want to be in a position to participate if the terms are right,” said Botterill.

Meanwhile, the business hopes to be granted approved body status to administer a group Atol for its members by the Civil Aviation Authority by the end of this month.

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