What do our quoted tour operators have to do in order to convince the City they represent a viable investment?
The City demands that capacity is kept in check, price wars are avoided and thequality of earnings is enhanced through geographical diversification. The three quoted operators are striving to comply with these desires. Airtours is a textbook case for strategic managers, First Choice has recently posted hugely impressive figures and the flotation of market leader Thomson should have given the sector added credence.
But does not seem to be the case. The Financial Times can only concentrate on possible oversupply for summer ’99 in the face of a pending economic downturn. Surely that is why capacity has been cut and overseas operations are being established in order to cut the dependence on the UK market.
Essentially, the sector has a poor reputation dating back to Clarksons, ILG, and the 1995 overcapacity debacle. However, unlike 1995, Thomson’s presence on the market must surely ensure that the major companies avoid the crippling price cuts of previous years. Quoted operators have a responsibility to shareholders and in this corporate world it is the shareholders’ interests which are paramount.
Consequently profitability is essential and the best way to produce profitability is to sell all your capacity at high prices. More than anybody Messrs Crossland, Long, et al, are aware of this fact. Would they really cut their own throats with excessive price cutting or capacity hikes?
The tour operating industry has witnessed many false dawns and yes, we are facing an economic downturn. However, the annual holiday is no longer the discretionary item it once was. It could be argued that it has become an essential item, providing a necessary escape from the rigours of modern-day life whatever the economic situation.
Last year saw the larger operators buck the general downward trend in retail business and it is tempting to believe that only two things can stop them from marching into a prosperous new millennium with the full backing of London’s Square Mile.
Yes, you guessed it, that match made in heaven – Anne Robinson and Saddam Hussein. Now there’s a far more daunting adversary than any City institution.
Alistair McLean
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