SO an extraordinary year in the travel industry ended as it began – with an acquisition marking further consolidation in the industry.
Thomson’s ú20m deal with Magic Travel Group parent Granada capped 12 months of frenzied activity where some hugely inflated asking prices were paid for companies by the big four operators.
The market leader had been tracking Magic, recently rebranded from the Air Travel Group, for the best part of the year before securing the operatorshortly before Christmas.
The purchase fits in with Thomson’s strategy of acquiring quality specialist operators.
Granada, which acquired Air Travel Group in 1987, is believed to have been ready to sell for some while and made no secret that it wants to concentrate on its media and hospitality business.
Airtours and Thomas Cook were also both interested with Airtours thought to have had an ú11m bid rejected. Neither company would meet the asking price.
Thomson chief executive Paul Brett denied he had paid too much for a company which made ú1m profit on a turnover of ú79m in the year to September 30.
“I really don’t think we have paid too high a price when you look at the potential and opportunity of the brand,” he said. “It would be unfair to say its been under performing within Granada, particularly over the past five or six months, but becoming part of the Thomson group gives it the opportunity it would not have had in its previous existence.
“It will benefit from Thomson’s technology, buying efficiencies, yield management and marketing.”
He added that all 280 staff at Magic’s Hammersmith base will be retained and it will be run as a stand-alone business.
Thomson does not expect the acquisition to be profitable before 2000. This is because under complex new accounting laws, companies must put the “goodwill” value of the purchase on their balance sheets and write it off against profits. Under the Magic deal, this payment will be written off over 20 years.
Thomson’s prime objective will be to increase volume to Magic’s core destinations in Spain, Portugal, Italy and France. But it believes there is further potential in other European destinations.
Industry observers believe there are also possibilities in taking the Magic brand further afield.
“Long haul is a definite prospect, albeit longer term,” said one source.
Magic Travel Group chief executive Jackie Kernaghan will remain at the helm for another six months after which she will ‘review her options’.
Thomson said a position within the group was a possibility.
Kernaghan will report to Thomson board director Peter Chappelow who heads Thomson’s Holiday Cottages division.
The specialist products are split between Chappelow, who is responsible for the cottage brands and French specialists Chez Nous and Something Special, and Lunn Poly managing director Ian Smith, who looks after Thomson Breakaway and Crystal Holidays.
Meanwhile, Thomson is expected to buy more companies in 1999 and boost Magic’s flight-only programme, currently with a 96,000 capacity, by making seats on Britannia available to Magic.