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With news that TUI AG of Germany intends to completely acquire the UK’s TUI Travel, TUI AG has designated scores of TUI Travel businesses from LateRooms.com to HotelBeds and Hayes & Jarvis as “non-core” and presumably they are up for sale.
These non-core businesses would be operated independently for now as the combined company seeks to maximize shareholder value by putting at least some of them on the sales block.
The businesses in question include B2B wholesale accommodation and consumer online travel agency brands that did $3.53 billion in total transactions in 2013, posting $68.13 million in EBITDA.
Also up for grabs is TUI Travel’s adventure division, which it characterizes as the world’s largest adventure travel business through a partnership with Intrepid Travel.
The adventure travel unit is part of TUI Travel’s specialist and activity businesses, which are considered non-core, and also take in Quark Expeditions, specializing in “polar travel,” and TCS, which does vacations using private jets.
All told, TUI Travel’s specialist and activity businesses include some 90 companies, which notched $70 million in EBITDA on $2.4 billion in revenue in 2013.
The designation of the online businesses as non-core assets represents a strategy reset for TUI Travel as it went on an online travel acquisition binge over the last five to 10 years, and many of these assets are now being judged by TUI AG as expendable.
The fire sale takes place as it is widely believed that Sabre has been trying to sell its under-performing and UK-headquartered LastMinute.com unit for a couple of years after off-loading Travelocity’s North America operations to Expedia Inc. in 2013.
Michelle Grant, EuroMonitor’s travel and tourism research manager, thinks TUI Travel may face some challenges in selling off its online travel agency division, although there certainly are some possible buyers.
“I think the company may find it difficult to sell its accommodation online travel agency division with the brands of Laterooms.com, Asiarooms.com and Malapronta.com,” Grant says. “Lastminute.com was being shopped around with no takers although Lastminute.com probably is double the size of TUI’s OTA brands.”
eDreams Odigeo and Bravofly Rumbo Group could be interested in TUI’s online travel agency brands because acquiring them would be a smaller risk than merging LastMinute.com, and the TUI businesses have a larger footprint in emerging markets, Grant says.
Laterooms ranks 12th with just a 0.9% share of the retail travel market in the UK, just ahead of eDreams Odigeo-owned Opodo, Grant says.
TUI’s Laterooms has legacy technology issues and saw its room nights decline 6% in 2013 as it migrated to a new technology platform.
Coupled with the fact that top online travel agencies such as Booking.com and Expedia posting double-digit growth rates in their hotel businesses, Laterooms’ subpar performance makes it difficult to believe “anyone would see it as an attractive business to acquire,” Grant says.
There are caveats, though.
Online travel agencies based in emerging markets could see acquiring TUI’s accommodations businesses as a cost-effective means of expanding their global reach, Grant says.
“Chinese players, for example, may want to apply what they’ve learned in their competitive market to jumpstart Asiarooms.com,” Grant says. “Russian OTAs may be interested in expanding into Europe. And, India’s Makemytrip.com may be large enough for a merger of equals.”
TUI Travel’s HotelBeds is one of the two largest accommodations wholesalers, along with GTA, which Kuoni acquired from Travelport for $720 million in 2011. Large online travel agencies seeking to expand their vacation-package businesses may see some value in picking up HotelBeds.
And there are an assortment of adventure travel business and other tour operators that may pick off bits and pieces of TUI Travel’s adventure and speciality travel portfolio.
Given the flurry of merger and acquisition activity in the travel industry over the last couple of years, some of the TUI Travel accommodation and specialty tour businesses will undoubtedly be sold although it looks like the merged TUI AG-TUI Travel will be stuck with a bunch of them.