First Choice splashes out on two US operators

First Choice has expanded its presence in the US with the acquisition of two operators.

The UK group has bought INTRAV from Kuoni for £37 million. The company specialises in small ship adventure travel, European river cruises, private jet expeditions and premium escorted tours worldwide.

First Choice has also acquired Grand Expeditions, a US group operating in six premium leisure sectors, for £54 million from US private equity fund North Castle Partners.

Details of the deals emerged as First Choice revealed record pre-tax profits of £114 million for the year ending October 31, up 16% on the previous 12 months.

Operating profit from mainstream holidays was £54 million, up from £48.5 million; specialist holidays £32.1 million, up from £23.8 million; activity holidays £18.1 million from £15.1 million; online destination services £11.4 million from £11.2 million; and the Island Cruises joint venture with Royal Caribbean £3.5 million against £0.8 million with First Choice’s share of the profits amounting to £1.8 million against £0.4 million.

The group said the Online Destination Sevices sector saw bednight bookings more than double in the year.

Total revenues at Hotelbeds grew by 22% to £210 million and transaction values at Bedsoneline and Hotelopia rose by 233% although the operating profit remained flat due to rapid investment this year and next.

The group said a “key objective” was to migrate suppliers and customers online.

“A key imperative for this route to market is to deliver XML solutions to the top 300 tour operator accounts by the end of 2006; we are currently a third of the way through this project,” the company said.

Despite the drive to online sales, First Choice said that in “certain areas of the group” third party travel agent relationships “continue to play an important role,” particularly in the UK and Europe.

“We believe that building a strong relationship with these key partners remains integral to those businesses,” a group statement said.

But First Choice said it was confident of achieving a target of 75% of sales through “controlled channels” by 2008.

The statement added: “Our retail stores continue to play a vital role in the distribution of First Choice products and have again increased the percentage of First Choice holidays sold through this channel. While this in itself does not improve the economics of distribution, it does provide an opportunity to up-sell other products (such as excursions, transfers and foreign exchange) as well as establishing a direct relationship with the customer. 

Going onto current trading, First Choice said mainstream holiday sector revenues were up 4% for winter 2005-06 and up 7% for summer 2006 following a 9% cut in winter capacity and 2% for next summer. Bookings in the specialist holidays sector for winter were down 8% but revenues up 1%. Capacity cuts are planned for the second half of the winter to ensure capacity matches demand.

Sales for activity holidays in winter were up 91% and summer sales up 39% with margins ahead.

By not chasing volume at unprofitable margins, the group said it continued to make progress towards a 5% operating margin target.

Referring to the financial performance, chief executive Peter Long said: “This result yet again demonstrates that our strategy of differentiation and a flexible business model is the right one.”

He said the group was well placed for further growth and was “confident” about the coming year.

First Choice announced that Giles Thorley, chief executive of one of the UK’s largest pub groups Punch Taverns, is to join as a non-executive director in February.

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Report by Phil Davies