MASSIVE overcapacity and widespread discounts are expected in summer 2000 after market leader Thomson pledged to substantially increase its market share.
The shock move came in response to Airtours decision to launch an ú852m bid for First Choice, valuing First Choice shares at 229p each.
The deal, which is almost certain to be accepted as Airtours already has the backing of 44% of First Choice shareholders, will make Airtours the UKmarket leader.
City analysts slammed Thomson’s move as “suicidal” and predicted it would cost its management their jobs. Thomson’s share price slipped 24p to 130.5p on the day of the announcement.
“Flooding the market is a return to the bad old days of overcapacity, discounted holidays and falling profits. Thomson is committing commercial suicide with this policy,” said a City expert.
Rivals were also highly critical, saying adding capacity contradicted Thomson’s policy of trying to get holidaymakers to pay more for packages.
Airtours head of investor relations Barry Nightingale said:”It’s a return to the bad old days of private Thomson. Will its shareholders be prepared to sacrifice value?”
Thomas Cook tour operations managing director Simon Vincent said he was worried about the destabilising effect on the market.
Thomson had a capacity of 3.5m for summer ’99 and finance director Mike Frith refused to say how much it would expand but said it was determined to stay market leader.
It has abandoned plans to withhold summer 2000 brochures until June and will instead launch on Thursday. Rivals will also launch on that day. Direct-sell operation Portland Holidays will be expanded and Thomson will launch a budget brand at the end of May.
A frantic week in the travel industry began with First Choice and Kuoni launching their offer document to shareholders on their planned ú1.5bn merger. Airtours chairman David Crossland, who is not interested in Kuoni, immediately launched a counter bid for First Choice, which was followed by Thomson’s statement.
Airtours is offering one ordinary Airtours share for two ordinary First Choice shares and 1.6 ordinary Airtours shares for every two First Choice Convertible Preference Shares. Finance director Tim Byrne predicted the acquisition will create annual cost savings of ú35m.
Byrne was confident of rapid approval from the European Commission. But First Choice said it was far from certain Airtours would get rapid regulatory clearance for its bid and said Thomson’s determination to remain market leader would destablise the industry. It urged shareholders not to take any action until the EC had made a decision following its initial investigation.
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