The M&A boom is affecting online travel agencies, too: UK-based OTA On The Beach plans to buy vacation company Classic Collection Holidays for £20 million.
The company said the move was driven by the need to counter the impact of legislation that had made it “increasingly difficult for independent agents to offer deals cost-effectively.”
Classic Collection packages beach vacations and sells them through a network of third-party offline travel agencies. Following the acquisition, On The Beach will invest to help grow Classic Collection's vacation portfolio.
The group will support Classic to invest in, build and launch an online booking portal to provide travel agents with access to a portfolio of mainstream beach holiday product under new brand Classic Online, which will be available exclusively through travel agents and will not be a consumer site.
The company, which specializes in European beach holidays, said the Package Travel Directive, which came into effect on July 1, “has meant that travel agents that dynamically package holidays take on onerous responsibilities that make it increasingly difficult for independent agents to do so cost-effectively.
“The acquisition represents a continuation of On the Beach's strategy, whilst leveraging the group's capabilities to access the circa-5 million short-haul beach holidays that each year are booked offline.”
The latest version of the Package Travel Directive was created to keep pace with the changing ways in which consumers are buying travel products as they move online. The changes mean more holiday-travel arrangements would be classified as packages and would come with financial protection. Many OTAs objected that this increased protection would come at an onerous cost to them, particularly the smaller organizations.
The deal to acquire Classic Collection also bolstered On The Beach’s offering, at a time when beach holidays, particularly in the Mediterranean region, were growing in popularity and moving up the scale toward luxury.
As reported earlier this month, both Thomas Cook and TUI Group have been investing in Mediterranean growth, in order to meet demand, particularly in the upscale segments, with Thomas Cook launching a fund to invest in real estate.
Warm Weather, Cool Bookings
As interest in the region has grown, so too have those in the region been hit by the recent hot weather in Europe. On The Beach cautioned on trading but said profits would be “broadly” in line. “As has been widely publicized, the exceptionally hot UK weather that has been prevalent over recent months, combined with the football World Cup, has suppressed holiday demand.”
“The resilient, flexible and asset-light nature of On the Beach's business model, combined with our advanced technology, has allowed the business to swiftly adapt to the unprecedented three-month heatwave and deliver an impressive performance,” CEO Simon Cooper added.
The recent pressure was not limited to the smaller OTAs. Booking Holding’s CEO Glenn Fogel told analysts on the group’s second-quarter earnings call that the “warm and dry weather in Northern Europe during the World Cup period had a compounding impact on bookings.” The OTA was looking to build market share and bolt on additional travel products to pursue further growth and ensure that it was not relying too heavily on one region.
Those which wish to compete must do the same, as On The Beach has realized.
Katherine Doggrell is an editor at Hotel Analyst, the U.K.-based news analysis service for hotel investors.