Much has been written about the merger of the big tour operators over recent weeks, highlighting the synergies and supposed rationales of the deals, with little mention about what I call ROE rather than ROI (return on ego rather than return on investment).
I wonder how much the real decisions were driven by who would end up as chief executive officer of each entity, as each of the main players in the game considered their options. I look at who will get to have the main job, what share options and other financial instruments become vested as a result of the deal, and what is in it for the characters personally. This is always the main driver beyond just adding value to the shareholders.
If I was a First Choice shareholder I would be happy that Peter Long has stayed in charge, and perhaps he can do the same to the bigger group as he has done to First Choice. Peter Rothwell will just bide his time under Peter Long, and then one day run the number one travel company in the world.
Manny Fontenla-Novoa will have much to learn about running a quoted company; very different to the private world he has experienced. Though, with his great touch and good fortune, I have no doubt he will succeed as Peter McHugh sails off into the sunset having done a super job in protecting the banks who rescued MyTravel.
Both mergers are great news for online players, for a number of reasons. Hotels will continue to reduce their dependence on just two players, management teams will remain inwardly focused for years to come, and both organisations will shrink as I have never known two plus two to make more than 3.5 at best, resulting in more holidays being sold by others over the next few years.
Low-cost carriers will quickly add capacity on holiday routes, to replace shrinking charter capacity as these organisations look for synergies. This will result in more, not less, capacity during the transition. Independent retailers will gain as multiple shops sell in-house, close down and generally provide less competition. Good staff will become available as head offices transfer, and two managements compete for the one job.
More importantly, never forget that the reason they are rushing to merge is to hold on to a share of a declining market in packages, and neither of these deals will fix a fundamentally flawed model whereby the cost of construction is too high, fixed overhead is too high and there are too many fixed assets.
The UK and Scandinavia markets are ahead in terms of online mix. Just wait till France, Germany and other European countries move away, as has happened in the UK, to book accommodation, flights and transfers separately, removing the exaggerated intermediary margin.
The pan-European nature of both of these deals, affecting almost all major European countries, will undoubtedly mean different things in different countries. In Scandinavia, I suspect the duopoly will continue for a while, allowing high prices and yet higher margins, till the low-costs add sufficient capacity to offer a real alternative to Ving and Startour.
In Germany, the medium traditional players such as Alltours and emerging online players will take market share and gradually erode the dominant position of TUI and old Neckerman.
The UK is so fragmented, with package holidays being in the minority already, that frankly it will make little difference to the onward growth of the Internet, dynamic packaging and the slow inexorable death of the old package.
So let’s congratulate the players involved, let them spend years obsessed with scale and being number one, and, in the meantime, allow others to pick away at these two huge lumbering whales.
Paul Evans is chief executive of LowcostBeds