There is something slightly bizarre about a travel company, which flies people to package holiday destinations, floating.
But the Thomson Travel Group (TTG) will, despite its claim that this is speculation, be floated later this year – possibly as early as May – by its Canadian parent the publishing group Thomson Corporation. Valued at an estimated 1.3bn, it will have as much as 200m set aside for future acquisitions.
While that is obviously significant for the group – tour operator Thomson Holidays, travel agent chain Lunn Poly and airline Britannia Airways – it will also have a dramatic impact on the rest of the UK travel industry and how it is marketed.
That is the background against which Thomson Holidays is reviewing its 9m advertising account (MW February 19). Marketing director Shaun Powell has drawn up a shortlist of HHCL & Partners, Abbott Mead Vickers.BBDO and the incumbent BMP DDB, which has handled the account since 1994.
“We are facing an increasingly big shift in the way we wish to market Thomson and we are asking three agencies to help us with our advertising strategy,” says Powell, confirming the review.
Observers see his comment as shorthand for Thomson developing a new marketing strategy to take account of the greater accountability that will come with plc status. A strategy that will, once and for all, move away from the price-driven plans previously adopted by Thomson and its closest rivals Airtours and First Choice. These plans cut margins and damaged the industry by making market share, rather than profitability, the ultimate objective.
City sources believe the company may float as early as May. “The price is now better than in living memory, the pound is strong against the Canadian dollar and the industry has seen a period of stability. Now is the perfect time to float,” says one City analyst.
As a public entity, Thomson would be in a better position to shape its own destiny. But leaving the home of a deep-pocketed parent for a gruelling – and demanding – foster family of City investors will affect the company’s marketing strategy.
Flotation will, according to City sources, leave the travel group with an estimated 200m war-chest to fund expansion into new areas. Its recently-created innovations unit, managed by former Unilever product development manager Nicola Meadley (MW January 8), is looking at electronic channels including the Internet, digital broadcasting, direct response television and the possible launch of a smart or affinity card.
Others believe Thomson will focus more on brand building. Placing more emphasis on added-value offers such as car hire – it launched Thomson Car Hire in a tie-up with Holiday Autos last October. It is also expected to develop its direct operation Portland.
“I think the biggest challenge for Thomson will be to instil more loyalty in its customers,” says an ad agency source. “From an execution point of view there is so much it could achieve in advertising. I would say that in the past it has been too middle class and when you look at the sheer volume of its market it should aim for a more mass-market approach. Thomson needs to be a bit more real life, to communicate on the innovations it is bringing.”
Of Portland, which now has one call centre operation in Manchester, Powell says: “Portland is a growing part of our business and I see it growing in proportion to our business. But people will always want to use their travel agent to book holidays.”
The company has embarked on an aggressive acquisition strategy over the past year, acquiring Swedish tour company Fritidsresor last December and Australian travel specialist Austravel in October.
Competitors in the industry are welcoming the flotation and hoping that it will mean the end of damaging predatory pricing. “When the market leader floats it can only be good news for the sector as a whole”, says one senior director at a competing company. “It’s a sign that the market is maturing and that there is an understanding there will be no big prize in undercutting the competition.”
One analyst says: “The million dollar question is how will it change after flotation. It’s a reasonable argument to say it will increase its presence through advertising because it will not be able to compete so easily on price as it has in the past.”
That Thomson and other travel companies have defended market share through aggressive pricing is more than urban myth. “Thomson has had management consultants crawling all over it,” says a source close to the company. “It has to be more profitable and can’t do that by going for low margins in order to sustain volume growth and market share.”
But according to Civil Aviation Authority/Mintel figures, Thomson lost ten per cent of its share of passengers between 1996 and 1997 and its overall market share slid from 21 to 18 per cent. The blame for price wars has often been laid at Thomson’s door. Unlike Airtours, the number two in the market, and First Choice, the number three – both floated companies – Thomson may have been willing and able to take a hit over the short term for longer-term market share gain.
“If a market leader is less obsessed with market share – which Thomson traditionally has been – it [flotation] will have an effect on the industry. Price will still be very important because it’s very important to the consumer. I wouldn’t say it [the flotation] would be the end of people competing on price, but there is likely to be less excess capacity,” says Dido Harding, marketing director for Thomas Cook retail.
On the surface at least Thomson’s rivals remain unconcerned.
“To ignore Thomson would be ludicrous, but it may not know what it is going to do. We feel big and confident enough to do our own thing,” says Philippa Harris, marketing director for First Choice holidays.
Similarly, Adele Swan, marketing communications manager at Airtours, says: “We obviously think about all eventualities. However, the fact that Thomson may be floating will not have any impact on our current strategy, which is to offer value-for-money holidays and be represented as an added-value brand.”
According to one source the advertising for the flotation has already been created. Recapitalisation should mean that Thomson is able to invest more in its brands and new acquisitions. Ultimately, it should be able to turn its back on the price discounting which this sector has tried, but failed to eradicate, for so many years.