Speculation after tour operator disposal plan

The European tourism industry could be set for the next round of consolidation after Kuoni’s historic decision to sell off its underperforming tour operator businesses.

The Swiss group announced this week that it would sell its tour operator businesses in Europe and focus in future on activities such as accommodation supply and incoming tourism services, as well as outsourced visa processing, with a strong focus on growth in Asia. Kuoni aims to sell the diverse tour operator businesses in Switzerland, Scandinavia, the UK, Benelux, India and Hong Kong by the end of this year.

The tour operator division, with some 3,800 staff, had revenues of some CHF 2.2 billion in 2014. The Nordics are the biggest business with turnover of CHF 844 million and number three in the region. In 2014, the Nordic tour operating business suffered a 14% revenue fall while and the Outbound Europe/Asia business, covering the other tour operators, had a 5% drop to CHF 1.3 billion. In Switzerland, Kuoni is the market leader with turnover of CHF 679 million. Kuoni UK, with revenues of CHF 410 million, is a leading specialist long-haul tour operator. India (CHF 138m), Hong Kong (CHF 79m) and Benelux (CHF 37m) are relatively small businesses.

Explaining the radical move, Kuoni said scale, technology, a global footprint and differentiated product offerings are becoming increasingly important in the global travel industry and the market environment “is likely to remain fast-changing, requiring travel companies to choose distinct development priorities”. A strategic review had come to the conclusion that the company therefore had to “focus its resources” in areas where it already has leading global market positions.

In future, the Swiss group will consist of three business areas, which already generate 60% of the company’s revenues, and will focus on high growth markets such as Asia, the Middle East and Africa. “Post-divestment, as a unique and clearly focused company, Kuoni Group aspires to become a leading service provider to the global travel industry and to grow significantly faster than the travel market as a whole,” the company stated.

There will be three divisions in future. Global Travel Distribution (GTD) operates as a leading B2B provider of accommodation and land services to tour operators, travel agents and other firms, based on GTA, the hotel beds database that it acquired in 2011. Already generating 43% of revenues from emerging markets, it will focus on growth in Asia.

The Global Travel Services (GTS) division, offering group travel and destination management services, generates 60% of its group turnover from Asia-Pacific source markets by providing European inbound tours. It will step up its Asia focus with new offices and partnerships. VFS Global provides outsourced visa application processing for 45 governments through 1,400 centres in 117 countries, with an estimated 50% market share and 70% of revenues from Asia-based travellers.

On a pro-forma basis, the newly structured Kuoni Group employs approximately 8,000 people and generated a turnover of CHF 3.4 billion in 2014. Briefly presenting preliminary results for 2014, Kuoni said group revenues fell by 2.8% to CHF 5.5 billion but the three future core divisions grew 1.1% to CHF 3.4 billion.

Kuoni’s decision to quit its original core business and sell off its tour operator businesses is a historic move that reflects the advance of online travel retailers in recent years but also the Swiss group’s failure to find a coherent strategy in the package holiday market, according to experts. In the Nordics and the UK, Kuoni faces powerful market leaders in the form of TUI and Thomas Cook, while the home Swiss market is relatively small and also highly competitive. The complete exit from tour operating follows the gradual sale over the last two years of small loss-making tour operators in markets such as France, Italy and the Benelux.

Kuoni CEO Peter Meier said no talks had yet been held with any potential investors, and added that “both strategic investors, who are our competitors today, and also private equity companies” are possible buyers. He did not say how much Kuoni hopes to earn from the disposal of the loss-making business.

Speculation has now broken out about potential buyers of the tour operating division, which could be sold en bloc or on a country-by-country basis. Kuoni could well find it easier to dispose of the tour operators one by one, observers believe. In the Nordics and the UK, market leader TUI is probably ruled out for reasons of market share while Thomas Cook is an unlikely candidate given its ongoing financial turnaround. In Switzerland, rival Hotelplan is a possible buyer while Germany’s DER Touristik could be interested in expanding its relatively small international activities, according to experts. Local firms and financial investors are other possible buyers in the different countries.