First Choice Holidays PLC

views updated

First Choice Holidays PLC

First Choice House
London Rd.
Crawley, West Sussex RH10 2GX
United Kingdom
Telephone: (+44) 129 356-0777
Fax: (+ 44)129 358-8680
Web site: http://www.firstchoiceholidaysplc.com

Public Company
Incorporated: 1973 as Owners Abroad (Wholesale) Ltd.
Employees: 11,178
Sales: £1.88 billion ($2.73 billion) (2000)
Stock Exchanges: London
Ticker Symbol: FCD
NAIC: 561510 Travel Agencies; 561520 Tour Operators

Having escaped a hostile takeover attempt by larger rival Airtour Plc, and at the same time seeing the collapse of a proposed merger with Switzerland’s Kuoni Travel that would have propelled it into the European big leagues, U.K. tour and travel operator First Choice Holidays PLC has changed direction for the new century. The fourth largest travel agent and tour operator in the United Kingdom, First Choice has made a successful move into the booming specialist travel segment, building up a steady portfolio of acquisitions that have extended its operations across Europe. First Choice operates in four principal areas: Air Inclusive Holidays; Charter Airline Operations; Travel Retailing; and Yachting and Watersports Holidays. These activities are supported through an extensive network of subsidiaries organized into four divisions: UK & Ireland Tour Operations, including mainstream and specialist businesses; International Tour Operations; Canadian Tour Operations; and Airline & Aviation, including the company’s own Air 2000 charter airline. Among the company’s brand names are the Bakers Dolphin, Travel Choice, and Holiday Hypermarkets retail chains, long-haul operators Hayes & Jarvis and Unijet; and premium niche companies such as Meon Villas, Longshot Golf Holidays, Sunsail, and Flexigroup. First Choice has been actively expanding its European continental holdings, boosted by the acquisitions in 2000 of the European tour operating business of Ten Tour Group and the travel division of Spain’s Barcelo. These acquisitions extended First Choice’s operations into the French, Spanish, Belgium, Austria, German, Swiss, and Irish markets. Fueling these acquisitions is the £200 million investment agreement with Caribbean Cruise Lines, which gave the U.S. company a 20 percent stake in First Choice—and coincidentally formed a poison pill defense against possible future hostile takeover attempts. First Choice, a money-loser in the mid-1990s, is led by CEO Peter Long and non-executive chairman Ian Clubb, who orchestrated the company’s turnaround strategy. After consolidating acquisitions, First Choice’s turnover neared £2 billion in 2000, with industry-leading operating margins of 5.4 percent.

Start and Restart in the 1970s

First Choice Holidays started life in the early 1970s, when Continental Air Brokers and Economy World Travel merged to form Owners Abroad (Wholesale) Ltd. in 1973. The company’s initial focus was on discounted airfares. As the Guardian described the company’s beginnings, Owners Abroad was a “bucket shop selling surplus airline tickets at knock-down prices.” The transformation of the British holiday landscape during the 1970s—which saw the country shift from traditional British shore-based holidays to increasing numbers of vacationers booking airplane flights—encouraged Owners Abroad to increase its position as a tour operator and travel agent. The company began to build up its portfolio by acquiring other established businesses.

One of Owners Abroad’s first acquisitions was that of Falcon Leisure, based in Ireland, which had been set up by John Boyle during the 1970s. Boyle was among the first to recognize the growing demand for flight-only travel; left with empty seats during a Falcon-organized charter flight, Boyle placed an ad selling the seats alone. The company quickly found buyers. British legislation at the time, however, restricted tour operators from selling only airplane seats; to circumvent that law, Boyle added cheap hostel beds to the flights. Falcon’s early position in this market gave it a long head-start when the legislation was finally changed. With the acquisition of Falcon Leisure, made in 1983 for £2 million, Owners Abroad placed itself in position to grow quickly through the 1980s.

By then, Owners Abroad had sold part of the company in a public listing on the London secondary market, raising the capital not only to acquire Falcon Leisure but to begin a steady diet of acquisitions, including that of the youth-oriented tour operator 2twentys, added in 1984. By the middle of the decade, Owners Abroad had transformed itself into a full-fledged tour operator. Supporting its growing travel package sales, the company decided to begin its own charter airline operations. In 1986, the company purchased two Boeing 757s; by 1987, the company was ready to launch its airline, dubbed Air 2000. The new airline enabled the company to offer some 35 weekly flights from the Manchester airport to destinations throughout the Mediterranean. Backing the launch of Air 2000 and the company’s impending expansion was a full-listing on the London primary market, in 1987. In that year, the company took on Howard Klein as chairman.

Air 2000 enjoyed rapid success, enabling the company to build up a fleet of nine airplanes by the end of the decade. The company was also enjoying a reputation for quality, with Air 2000 winning a number of awards for being among the United Kingdom’s best charter airlines. By the beginning of the 1990s, Owners Abroad had built up a position as one of the top five travel companies in the United Kingdom.

Meanwhile, Owners Abroad continued branching out, in 1988 acquiring 25 percent of Canada’s International Travel Holidays (ITH), which had been founded in 1972 as Adventure Tours Canada. The share purchase by Owners Abroad encouraged ITH to begin its own expansion drive, as the company moved to establish nationwide operations, principally through the acquisition of a number of strong regional players. ITH also began cruise operations, forming Encore Cruises in 1991. In 1994, Owners Abroad acquired 100 percent of ITH, which by then had become Canada’s leading travel and tour operator. The acquisition helped balance Owners Abroad’s traditionally summer-based business in the United Kingdom with Canada’s winter-based travel season. Owners Abroad then changed ITH’s name to Signature Vacations in 1995.

Resistance in the 1990s

By then, Owners Abroad had changed its own name and weathered a crisis that nearly saw its end as an independent company. Chairman Klein had begun informal talks with rival Airtours, another fast-growing tour and travel operator, about the possibility of merging the two companies in the early 1990s. Talks broke off, however; instead, Owners Abroad sold a 10 percent stake to Westdeutsche Landesbank, through its Thomas Cook travel subsidiary, based in the United Kingdom, in 1992. The following year, however, Airtours, which had managed to avoid a monopoly inquiry, launched an all-out hostile takeover bid for Owners Abroad. The company fought to defend itself, at a cost of £5 million, and finally succeeded when its German investor increased its stake to 20 percent.

At the same time, the combination of a shrinking, recessionera travel market and the company’s own market missteps—the company missed the renewed interest in Spanish holidays in the early 1990s—wiped out the company’s profits. The resulting scandal among shareholders forced the resignation of Klein and other members of the company’s management. Owners Abroad then hired Francis Baron as chairman.

Baron immediately took the company on a rebranding and restructuring exercise. After market tests revealed that many of the company’s half dozen or more brand names enjoyed virtually no brand recognition among British consumers (compared with more than 50 percent recognition for rival Thomson); meanwhile, the company’s name itself had led to a great deal of confusion among consumers, who were convinced that Owners Abroad was little more than a time-share operator. In 1994, therefore, the company scaled back its number of brand names to just three, and changed its corporate name to First Choice Holidays. The company’s smaller range of brand names were also restructured around three main business categories, those of family vacations, single holidays, and luxury travel.

Baron did not last long with First Choice. Although credited with successfully bringing First Choice through its rebranding, Baron quickly alienated others in First Choice’s management with what was described as an “authoritarian” management style; Baron’s management also led to strains between First Choice and Westdeutsche Landesbank, which began reducing its shareholding in the company. Meanwhile, First Choice, which was by then the United Kingdom’s number three travel company, was seeing its market share gradually being eroded. Operating margins were also dismal, posting at just 1 percent, compared with as much as 5 percent elsewhere in the industry. At last, in 1996, after other members of First Choice’s management threatened to quit, Baron was packed off with a £650,000 severance check.

Baron was replaced by Peter Long as CEO, while Deputy Chairman Ian Clubb took the company’s chairmanship. The new heads quickly inaugurated a turnaround strategy, promising to restore operating margins to 4 percent by 1999. Not only were Long and Clubb successful—the company’s operating margins topped 5.4 percent in 2000—they also successfully steered First Choice through a new expansion that gave the company a position as one of the U.K.’s strongest specialty operators—the industry’s highest-margin sector—and also expanded it as a European-wide operator. At the same time, First Choice moved to become a vertically integrated operator, adding a long-absent retail division, boosted by the acquisitions of Bakers Dolphin—which traced its history back to the late 1800s—and Intatravel. The company also began opening retail stores under the Travel Choice and Travel Choice Express brands, and joined in on the formation of the Holiday Hypermarkets joint venture. The company took full control of Holiday Hypermarkets in 2000.

Company Perspectives:

First Choice is a leading European leisure travel company comprising mainstream and specialist tour operations, travel retail and aviation businesses.

By 1998, First Choice was ready to begin an extended acquisition drive. In that year, the company bought up two of the U.K.’s leading long-haul specialists, Unijet—the country’s fifth largest tour operator—and upscale vacation packager Hayes & Jarvis. The two deals, for £134 million, helped to spark a century’s end industry consolidation frenzy.

First Choice itself was caught up in the consolidation whirl, announcing its agreement in 1999 to merge its operations with those of Switzerland’s Kuoni Travel and thereby create one of Europe’s leading travel operators. That deal unraveled after Airtours returned with a new hostile bid for First Choice— quickly rallying First Choice’s shareholders to its cause. Kuoni dropped out of the proposed merger and First Choice’s hopes rested on the European Community’s Mergers and Monopoly review board, which rejected the takeover attempt.

By the time the dust settled on the hostile takeover, the consolidation of Europe’s travel industry was in full swing, with U.K. market leader Thomson Holidays being snatched up by German travel giant Preussag, among other deals. First Choice, however, was now content to remain on the sidelines of the consolidation drive and instead quietly build up its portfolio in what was to become widely viewed as the key travel growth market in the 21st century, that of specialist travel. Between 1999 and early 2001 First Choice had completed more than half a dozen acquisitions and had solidly positioned itself as a leader in the high-margin specialty market. The company also made significant strides overseas, acquiring the European tour operating business of Ten Tour Group and the travel division of Spain’s Barcelo, giving it a foothold in most of the primary European markets.

Fueling this new acquisition drive—and providing a significant war chest for future acquisition moves—was the May 2000 agreement with Caribbean Cruise Lines that gave the latter a 20 percent stake in First Choice for its £200 million investment. The two companies also agreed to begin preparations for a launch of a new joint-venture cruise company to begin operations possibly by 2002. The deal was well greeted by industry analysts, who pointed out the investment gave First Choice a large-scale investor capable of thwarting any future hostile takeover attempts. First Choice quickly showed its continued interest in international expansion: in March 2001, the company announced its acquisition of 75 percent of CIT Holidays, a U.K.-based company with extensive operations in Spain and Italy.

Principal Subsidiaries

First Choice Holidays & Flights Limited; Unijet Travel Limited; Air 2000 Limited; Ski Bound Limited; Viking Aviation Limited; Hayes & Jarvis (Travel) Limited; Bakers World Travel Limited; First Choice Retail Limited; Sunsail International Limited; Meon Travel Limited; Holiday Hypermarkets (1998) Limited; Sunquest Holidays (UK) Limited; Crown Holidays Limited; Falcon Leisure Group (Overseas) Limited (Ireland); Taurus Reiserveranstalter GesmbH (Austria); Bosphorous SA (Belgium); Groupe Marmara SA (France); Stardust Yacht Charters SA (France); Nazar Holiday Reiserveranstaltung GmbH (Germany); Taurus Tours AG (Switzerland); Royal Vacaciones S.A. (Spain); Viajes Barceló, S.L. (Spain); Signature Vacations Inc. (Canada).

Principal Divisions

UK & Ireland Tour Operations; International Tour Operations; Canadian Tour Operations; Airline & Aviation.

Principal Competitors

Airtours plc; American Express Company; Carlson Wagonlit Travel; Kuoni Travel Holding Ltd.; Preussag AG; Thomas Cook Holdings Ltd.

Key Dates:

1973:: Owners Abroad (Wholesale) Ltd. is formed.
1982:: Company changes name to Owners Abroad Group plc and lists on London secondary market.
1983:: Company acquires Falcon Leisure (Ireland).
1987:: Company is listed on London primary market.
1988:: Owners Abroad acquires stake in International Travel Holidays (ITH; Canada).
1992:: Thomas Cook assumes 10 percent stake in company.
1993:: Airtours attempts hostile takeover; Thomas Cook raises stake to 20 percent.
1994:: Owners Abroad acquires full control of ITH; changes name to First Choice Holidays.
1995:: Company changes ITH brand name to Signature Holidays.
1996:: Peter Long becomes CEO, announces three-year restructuring plan.
1999:: First Choice attempts merger with Kuoni Travel (Switzerland); Airtours launches new hostile takeover attempt; company begins Holiday Hypermarket joint venture; acquires Bakers Dolphin and Intatravel to launch retail division.
2000:: First Choice acquires Meon Travel, Sunsail International, and FlexiGroup; launches Travel Choice Direct; acquires full control of Holiday Hypermarkets; acquires Ten Tour Group’s European tour operating business; acquires Barcelo (Spain) travel division.
2001:: Company acquires 75 percent of CIT Holidays.