Although low-cost carriers have been eating into tour operators’ profits in recent years encouraging do-it-yourself deals, traditional travel companies are still big players in the holiday market. In fact one in five of the 15m passengers who pass through Dublin airport each year are customers of tour operators.
“Online travel companies are taking business away from tour operators but the sector will remain profitable and healthy because a big chunk of the public will always want the face- to-face factor when booking a holiday,” says David Pope, an analyst at Brewin Dolphin stockbrokers in Britain. “Families want to talk to agents, browse through brochures and get feedback from people who have been to the resorts.”
Anna Sofat, managing director of Destini Fiona Price, the UK-based independent financial advisers, agrees that the European tour operator sector is set to grow over the long term. “More and more people are becoming globetrotters,” she says. “However, anybody considering investing in this sector would want to carry out detailed research on the companies involved. Not all of them are viable investment opportunities.”
So who are the main players and which ones offer the best potential for returns? There are four big publicly quoted European tour operators: Germany’s TUI, Britain’s MyTravel and First Choice Holidays and Switzerland’s Kuoni Reisen.
TUI reported sales of €19.22 billion for last year, a decrease of 5.4% on 2002. MyTravel revealed sales of £4.19 billion (€6.4 billion), down 4.3% on 2002, First Choice Holidays sales were £2.25 billion, up 3% on 2002, and Kuoni sales were €2.15 billion, down 12% on 2002.
Advertisement
Tourism sales accounted for 66% of TUI’s turnover last year, but it has four other non-travel divisions, making it less vulnerable to a downturn.
Investors should tread with caution, Sofat says, as some travel companies are struggling and their stock is very volatile. MyTravel is experiencing debt problems and, as a result, the share price has hit rock bottom.
Last Wednesday, it was priced at 15p compared with 28p in June last year. It closed at 27.5p last Friday “If it renegotiates and restructures its debt the stock could be a good bet for investors,” says Sofat. “However, it is a risky gamble. If the debt is not restructured, the stock price could go further south.”
Sofat believes that Kuoni Reisen is a safer bet because it is a niche player catering for the luxury end of the market. It offers five-star holidays in exotic locations such as the Far East, South Africa and the West Indies.
Kuoni Reisen’s stock has performed well over the past year. It was trading at €339 compared to €231 a year earlier. “It’s the companies that cater for niche markets that will survive,” says Sofat.
Advertisement
Pope says that investors in Kuoni are taking on a small risk because there are issues with the board. “The management team has fallen out with the family shareholders and although there has been an official make-up, issues still exist,” he says.
Pope’s favourite is First Choice Holidays. He says the company has the smallest fleet of aircraft and rents out the rest under a system called “Power by Hour”. This costs First Choice Holidays 40% less than the pre-September 11 lease that many other operators use.
“Investors should look at this stock on a long-term basis,” says Pope. “The company is looking to expand into niche markets. It has a good strategy, its balance sheet is strong and it has a great management team.
“In a volatile industry, it has all the essential factors to make it a strong player.”
The stock has been climbing steadily in value. Last week it was trading at €1.78 compared with €1.45 a year ago.
Advertisement
Neither Sofat nor Pope mentioned TUI for investors. According to Wright Investors’ Service, in recent years the stock has performed terribly. In 1999, the stock traded for as much as €60.50, while last week it was trading at €15.75.
TUI said in March it expected earnings from its core tourism operations to return to growth this year as the industry recovers from a downturn.
The group predicted a double-digit percentage rise in earnings before tax and goodwill at its tourism division this year, after falling victim to Sars, the Iraq war and the global economic malaise last year.
Sofat says investors would be well advised to look at the online operators such as Lastminute.com, which is due to open an office here next month. During a volatile period for the travel industry, its stock has remained steady. Last week it was changing hands at £2.80, slightly ahead of the £2.69 recorded a year earlier.
Whatever your choice, carry out detailed research and look at the history, balance sheet, performance and management of the company.
Advertisement
It’s one thing to get burnt on your holidays, another to suffer the same fate with your investments.