tutor2u™ Business Strategy Casebook Volume 2 UK Holiday Industry

Taking a Break from the Mass Market

Case Study Briefing As the mass-market package holiday has reached the maturity stage of its product life cycle, specialised tour operators are achieving faster growth and higher profit margins. Holidaybreak PLC - is solely focused on operating in specialist holiday markets. It has built a diversified holiday portfolio through both organic and acquisitive growth. It is a strategy that has proved successful.

Base Camp for Acquisitions Holidaybreak plc is one of only three holiday companies that have their shares quoted on the (the other two are MyTravel and First Choice Holidays). The business has come a long way since it was founded in 1973 as Eurocamp Travel Limited. Back then it was a family run business, based in Knutsford, Cheshire, offering camping holidays in Brittany. In the following 20 years it grew organically to become the market leader in the European camping and mobile home market. The camping business then became the platform for a strategy of building a travel group focused entirely on specialist holiday segments. Whilst the individual markets in which Holidabreak operated were growing strongly, management’s strategy was to accelerate company growth by making acquisitions. The result of the strategy has been the creation of three divisions focused on separate specialist holiday markets: 1 Camping and mobile homes (mainly Europe) 2 Hotel Short Breaks (UK & Abroad) 3 Adventure Holidays (e.g. walking, diving) Strategy in Detail How Holidaybreak Built Market Leadership in Hotel Short Breaks The Hotel Breaks Division of Holidaybreak was formed in 1995 when Holidaybreak acquired the UK’s two leading hotel short break brands - and Goldenrail from a venture capitalist. Superbreak, still the division’s main brand, has specialised in UK short breaks for more than 18 years and is the clear market leader in the segment. The division has developed to offer a complete range of short breaks, including theatre breaks, airport hotels, luxury hotel accommodation, and more recently

© tutor2u limited 2004 www.tutor2u.net tutor2u™ Business Strategy Casebook Volume 2 UK Holiday Industry overseas city breaks. Collection. However, the typical transaction value is approximately £200 for a two-night UK break for 2 The business model for the Hotel Breaks division is people, and £300 for an equivalent European break. very simple. It negotiates allocations of hotel rooms in popular locations (such as London, Edinburgh and York) Customers pay for the entire cost of the break at the at low rates and then markets this accommodation to time of booking. Superbreak benefits from strong since travel agents and hotels are not paid consumers via a variety of distribution channels. cash flow, until some weeks after the customer has taken the From the customer perspective, Superbreak and short break. the other division’s brands make hotel reservations for short breaks very easy. Customer profile Consumers can search for Holidaybreak Mission The hotel breaks programme availability, hotel prices and Holidaybreak is the UK’s leading operator of is aimed at consumers using short break offers using both specialist holiday businesses. Group companies hotels for leisure purposes, the brochure and a supporting retain a distinctive identity whilst sharing expertise normally weekend breaks. web site. and exploiting opportunities in areas of common Customers come mainly from interest. Superbreak’s short holidays the ABC1 social categories. are primarily UK based (i.e. Our aim is to achieve continuing profitable growth Hotel breaks have a fairly it operates in the domestic by developing our existing businesses and market broad appeal among all holiday sector), although a leading brands in the UK and European holiday age groups. Older couples new programme of European markets and through acquisitions within the travel predominate but families breaks has been growing sector. are also an important target in popularity since it was group. launched in 2001. Market background More than just hotel accommodation, the Hotel Breaks Sustained growth in short-breaks and multiple holiday brands also offer rail inclusive packages, and theatre, taking has been a feature of the UK holiday market in concert or special event breaks. By packaging hotel recent years. Increasingly consumers are taking more accommodation with events such as these, Superbreak frequent but shorter holiday trips. is adding value for the consumer, and is able to According to Mintel, the proportion of UK achieve an increase in the total booking value and holidaymakers taking just one holiday a year now profit margin. stands at 49.1%, down from 55.8% in 1992. The amount of people taking three or more holidays a year has increased by 6% since 1992. The main growth in the sector is therefore coming from ‘multiple holiday takers’ (i.e. three or more per year). Typically, these are a mix of UK and overseas trips. Although many domestic holiday sectors have been struggling the total number of holiday trips has still been on the increase because of the growing short break market. Most domestic short breaks are booked independently by customers - directly with the accommodation provider. Only 10% are booked through high street travel agents. It is in this distribution channel that Superbreak enjoys a dominant market position. Pricing strategy Superbreak and its associated brands have a market The consumer price of a hotel break varies widely share of over 70% of hotel short breaks booked according to the standard of hotel accommodation through travel agents. To the travel agent, the required. Prices range from £20 per person per night advantage of booking with Superbreak is clear. The in a regional hotel (out of season) to over £400 per brand has the biggest allocations of hotel rooms at the person per night in brands such as the Luxury Hotel

© tutor2u limited 2004 www.tutor2u.net tutor2u™ Business Strategy Casebook Volume 2 UK Holiday Industry best leisure rates with reservation systems designed to distributin channel. serve the retail agent. - making it an easy booking to Direct bookings are growing, particularly through complete. This is an important competitive advantage the Internet as people become more trusting of for Superbreak - as is its ability to fill thousands of the Internet and are increasingly prepared to book hotel rooms each day. This allows it to get the best accommodation online. Much of this Internet business allocations and rates from hotel suppliers. is commissionable (i.e. Superbreak pays another party commission for encouraging or arranging the booking), coming via click-throughs, or various partner sites where the Superbreak hotel range is featured (e.g. thomascook.com) The development of new distribution channels has been an important ingredient in the successful growth of the Hotel Breaks business. Affinity group and partnership marketing has become much more significant. Superbreak is now working with several regional tourist boards and names such as GNER, in joint promotions to their customers. Business model Distribution strategy The Hotel Breaks business is a high volume, low The hotel breaks product range is featured in several transaction value business (c.£200 per booking). With catalogue style brochures which are distributed agency commissions an entirely variable cost and no primarily through UK travel agents. Superbreak up-front commitments for rooms, transport, theatre brochures can be found in most of the UK’s large tickets, fixed costs are minimal. retail chains and in the vast majority With minimal capital expenditure requirements and of independent agents. Some 60% of sales are year round sales the business is profitable and cash made via this channel with the balance being direct flows are strong throughout the year. No wonder telephone sales or through the internet. (see chart Holidabreak is enjoying the rapid rise in profits from above showing the mix of sales achieved through each its growth strategy in this market. Jargon Buster Questions of Strategy

Organic growth I What demographic and socio-economic factors Where a firm develops as a result of its internal may be behind the increasing popularity of short efforts - e.g. by investing in marketing to increase breaks and multiple holiday-taking in the UK its market share. Superbreak grew organically until it I What are the competitive advantages that was bought by Holidabreak. Since then it has made a Superbreak and its associated brands enjoy from series of acquisitions to boost sales and profits. being the market leaders in hotel short breaks? Acquisitions I Visit the Superbreak web site and identify the The purchase of one business by another. ways pricing is used to encourage bookings Acquisitions are a faster way to achieve growth - but carry significant risks Web Watcher Short breaks Holidays involving stays of less than four nights Holidaybreak web site ABC1 http://www.holidaybreak.co.uk/holidaybreak/ The more affluent socio-economic groupings Superbreak web site Market share http://www.superbreak.com/ The sales of a brand or product relative to the rest of the market. Often expressed as a percentage.

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