Merger Mania Grips the Travel Industry

tutor2u businesscafé supporting teachers:: inspiring students Merger Mania Grips the Travel Industry

The travel industry continues to consolidate with mergers announced between the main package holiday operators.

TUI takes charge The structure of the UK travel industry has been changed again with the latest in a series of large- scale mergers. In March 2007, German-owned TUI announced that its tourism division would merge with the UK-based First Choice Holidays plc to create Europe’s largest travel company with 27 million customers and £12 billion of sales. TUI is now one of the world’s largest travel companies, although this was not always the case. Like Nokia, which once was a timber logging and transportation company, TUI has undergone radical strategic change during its history. The company was founded in 1923 as Preussag AG. Tour operator First Choice has focused on specialist, niche Essentially, it was a mining concern which developed holiday markets such as flotilla sailing, rather than build into a more diversified industrial firm. Over time the market share in traditional package holidays company developed a shipping division, purchasing million. These will come mainly from the UK market Hapag-Lloyd in 1997. At the same time, a small by combining marketing, administration and flight tourism company, TUI was created in 1968 through services across the group’s travel brands. the merger of several small companies and in 1998 this was acquired by the Preussag/Hapag-Lloyd The two companies seem to strategically complement group. each other - First Choice is focused on activity and specialist holidays whereas TUI is the leader in mass- The enlarged group then took a radical strategic market , short-haul package holidays decision to focus on the tourism and leisure sector rather than the industrial and manufacturing Many cost savings will come from rationalisation activities. - a natural consequence of such a merger. Thomson Holidays had already announced the loss of 2,600 In 2000, TUI acquired Thomson Travel Group plc (the jobs in the UK market in 2006 due to falling margins UK’s market leader for package holidays) and the within the sector. group was renamed TUI AG in 2002. Merger – Creation of TUI Travel PLC Oligopolistic Market The merger will lead to the further consolidation of Speaking to investment analysts, Dr. Michael the European travel market. The deal will also need Frenzel, the Chairman of the new company “TUI to be approved by European competition regulators Travel PLC” stated that the merger would create “the and some analysts are unsure as to whether it will biggest tourism platform worldwide”. The company gain clearance. will be 51% owned by TUI AG and the other 49% will be owned by First Choice. In February 2007 Thomas Cook announced a merger with MyTravel (Airtours) leaving a market dominated The company will be based in London and will be by a few large players. floated on the London Stock Exchange. To make the merger work from a financial perspective, TUI Travel are targeting synergies of around €146