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Speculation Runs Rampant Over Imminent Kuoni Sale
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Covering the Inbound Tourism Industry Since 1996
by Tom Berrigan
by Tom Berrigan
The Washington, D.C.-based venture capital firm, the Carlyle Group, is among the firms interested in acquiring the Kuoni Group as the latter seems to have given up on staying in the travel industry despite its efforts last year to re-capitalize and grow its business by offloading its European tour operator enterprises and stick to its core products. Among the buzz and news bytes circulating in the European trade and business news media on Jan. 4-5, the following points were established:
—The Zurich-based Kuoni Group—founded in 1906 by Alfred Kuoni, it is continental Europe’s oldest tour operator—is for sale, as the company hired two banks last month to review its plan to break up and sell its operations;
—Those firms apparently interested in Kuoni include the Swedish company EQT, BC Partners, Permira, Partners Group, and the Washington, D.C.-based private equity firm, the Carlyle Group;
—Because of its spotty financial performance in recent years, it appears unlikely that the selling price for Kuoni would exceed or even reach its current market value of $1.1 billion; and
—Any deal might not go anywhere should it fail to receive the approval of approved the Kuoni and Hugentobler Foundation, an entity set up by the founding family and which has a 25 percent voting stake that enables it to block any transaction.
Too Little, Too Late? Who’s Affected? Once considered a blue-chip investment, the Kuoni brand has hobbled along in recent years, selling off various parts of itself that were not a part of the B2B travel experience. This activity peaked last year when the company sold off its European operations to DER Touristik, Germany’s third-largest tour operator. Kuoni held onto AlliedTPro (the combined T-Pro and Allied Tours companies, which it acquired 2000-2002) and GTA, as well as brite spokes, the experiental travel brand that Kuoni launched in 2013. All three are based in New York City. Their fate is uncertain, regardless of who acquires Kuoni.
The Carlyle (Travel) Group? The global venture capital firm has aggressively pursued investments in the travel business in the past several years. In 2010, it acquired a majority interest in CVC, the largest travel company in Brazil. Last fall, it acquired two leading travel companies in Peru— Nuevo Mundo Viajes, an outbound company, and Condor Travel, an inbound operator—to form a single regional company, Nuevo Mundo. Earlier, in May 2014, Carlyle acquired a majority stake in Bonotel Exclusive Travel, the Las Vegas-based receptive tour operator that markets upscale product. Carlyle has also invested in Ctrip, China’s largest online travel agency.
by Tom Berrigan
Jake Steinman, founder and CEO of the NAJ Group, which publishes the Inbound Report and hosts TheTourOperator.com website, recently conducted his final Listening Tour for the year 2015, during which he met with some 50 receptive tour operators and staff in their offices in the Greater Los Angeles area. Much of the discussion with the receptives centered on the strong and still growing market from China. Following are some of his observations from the experience.
The under-the-radar operators comprise a parallel universe in which they are hacking the market. Plying family and long time personal relationships in China, there is an entire unregulated industry in the U.S. of receptives serving their contacts in China, as well as marginal travel agents in China who obscure their identities through the practice of leasing desks from one of the major travel companies (such as CITS or CTS) in fourth tier markets, much like a hair stylist rents a chair in a salon. While they have no official ties to the home agency, their business cards usually include the logo of the home agency—thus creating a false sense of identity.
The Underbelly of the Chinese Tour Operator Market: To fully understand how the Chinese market works, Steinman recounted two stories from last month’s “Listening Tour” in Southern California.
The Parallel Universe: Appointments were made for us by a local Chinese supplier who also volunteered to be our guide to meet operators. One afternoon, our meetings shifted from San Gabriel to Torrance and our guide received a text from her sister-in-law asking her to stop off and pick up some Jujubes at a location near Torrance. (Dried dates, the Jujubes are a delicacy used for stuffing duck and goose.) We thought this might be a small Chinese food market, but the address pointed us to an auto repair shop. After double checking the address, we noticed the overhead pull-down door was closed, so we knocked on a side door around the corner and were greeted by a family of four, apparently owners of the repair shop, who were in the middle of lunch. They invited us in. Yes, they assured us, this was the right place. The owner went into the back and pulled out 5-10-and-20-pound bags of Jujubes that our guides were delighted to buy. He also offered us pre-packaged samples of tea made from Jujubes that he could also sell us. The garage owner told us he owned a 20-acre Jujube farm in Big Bear and did not sell on the Internet—only 100 percent word-of-mouth and off the books. It occurred to us that this was probably how the Chinese travel industry operated … with rogue receptive operators purchasing hotel product through one of the Chinese online bed banks powered by Hotelbeds, Tourico or GTA inventory: Low overhead, low risk, and flying under the radar of official governing bodies such NTA, they operate in a parallel universe that is frustrating official receptives.
The Sad Story of Gary Huang: The other is the story of Gary Huang, a little known but once highly successful operator who built a strong receptive business through a tight network of “old friends” in China to whom he extended 90-day credit terms, which has become the norm for budget and group tour business. After several years of strong growth, his friends began paying him later and later until he got to the point where he was holding off his creditors all the way down the supply chain. They told him the only way they could pay down their debt to him was if he accommodated more of their coming tour groups. Eventually, of course, Huang had to file for bankruptcy and move back to San Gabriel where another receptive and hotelier, to whom he owned over $75,000, took pity on him and hired him. With no money and rising personal expenses–he borrowed $20,000 more from his employer for his daughter’s wedding—the financial pressures became insurmountable. One day last May, he collapsed at his desk and later died of a stroke that his friends felt was caused by unbearable pressure.
by Tom Berrigan
When it is actually announced, the sale of Hotelbeds by TUI will be anticlimactic. In prepping for the sale of its Palma de Mallorca-based operation (its Americas operation is headquartered in Cancun), Europe’s largest travel company has relentlessly promoted just how strong and profitable the operation is. Not only that, TUI has pointedly been promoting just how healthy the state of its overall operation is—following the merger of the travel company with its parent company, TUI AG, and the acquisition of the European units of by its competitor, DER Touristik.Translation: Do not expect any interested party to pick up the Hotelbeds property at a discount.
The latest—and, indeed, impressive—announcement from TUI touted the performance of Hotelbeds in Fiscal Year 2015, which ended Sept. 30. Hotelbeds closed the year with a gross turnover of 4.279 billion euros ($4.7 billion) an increase of 700 million euros ($769 million), or a 20 percent increase over 2014, and profit before taxes and amortization (EBITA) of 117 million ($128 million), 15 percent higher.
At the same time the positive financial statement for Hotelbeds was released, TUI also announced that it its overall business had registered 2015 profits of more than $1 billion, an increase of more than 20 percent over 2014. There was no indication in the financial reports that there was any increase in Visit USA business—most of the strong numbers came from European markets. Perhaps just as important for the TUI Group as the financial numbers themselves is the impact that they will have on a sale price for the unit. Deutsche Bank and Bank of America are responsible for the financial review and sale of Hotelbeds. According to published accounts, the review is likely to be completed in the next few weeks.
It the meantime, just as TUI is spinning off Hotelbeds, it has ventured into a new activity—online vacation home rentals. It has launched a new European portal—TUIvillas.com—offering holiday homes around the world. The new website has an inventory of about 270,000 holiday homes, apartments, villas and other kinds of accommodation in 70 countries. Of these, some 30,000 homes that meet its quality criteria are currently listed as “TUI villas.” The portal is operated by Atraveo, a TUI subsidiary that specializes in online bookings of holiday accommodation, and cooperates closely with TUI Ferienhaus and TUI Wolters, the group’s German holiday homes brands.
by Tom Berrigan
Abruptly, and with no public notice, online retail giant Amazon.com has shut down its hotel booking site, Amazon Destinations and has also stopped selling reservations via its Amazon Local app. While the move came as a surprise to the journals that first reported the shutdown two weeks ago, it does not seem to have surprised to Mel Tye, the Merrimack, New Hampshire tour operator—his Tye’s Top Tour and Travel sells both domestically and internationally—who was one of a small group of operators who worked with Amazon to get the project under way.
The website was launched last spring, offering hotel rooms in Seattle, Los Angeles and New York. Within four months, it had spread to 35 cities. There was no statement from the company on what caused the sudden closure of the site, except for a company spokesperson’s brief response to one tech journal’s query: “We have learned a lot and have decided to discontinue Amazon Destinations.”
In discussing the matter with the Inbound Report, Tye was a little more expansive than was Amazon. “We sold two tours on Amazon, one to the induction ceremony at the Baseball Hall of Fame and one to a Red Sox–Mets game,” he told us, adding, “the approval process was very cumbersome and took an average of six weeks to get approval on package. (Even so, he sold $5,000 in packages within two weeks.) The test window was small. After we ran these programs, Amazon advised us they were pulling the plug on this project as the expected targeted revenue from the five tour operators selected for this project was not reached.”
It seems as if the Amazon team was unfamiliar with some of the collaborative practices—practices considered de rigueur in the tour and travel industry—that wholesaler, retailer and supplier share in selling a product to the travel consumer. For instance, Tye explained, Amazon was unwilling to provide him with contact information for travelers, and his staff had to wait for customers to contact his company once a travel voucher was purchased, or reach out to the Amazon sales team to get the customer to contact his office. So, recounted Tye, “We informed Amazon that with travel unless we were able to contact the customers and complete the information necessary to make travel arrangements the program would not work.”
Amazon’s reaction? “They advised us that they were pulling the plug on selling tours,” said Tye, “and would attempt to sell hotel vouchers and attraction vouchers only that did not require customer contact information. These travel vouchers could be used by any person holding the voucher.”
Could Amazon have done something differently to move the project along, we wondered. Said Tye: “We were learning as we went along, and doing two local tours was not a realistic test of selling tours on Amazon. In my opinion Amazon did not give significant time to develop a model to sell travel as a product.”
The collapse of the project might have something to do, as well, with the fact that the commissions that Amazon wanted to achieve with each of the participating operators (usually, at least 30 percent, it was reported), made the packages too expensive. Whatever the real reason or reasons for the shutdown of the Amazon travel site, no one we talked to thought that it would reappear any time soon.
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