On the Beach's purchase of Classic Collection Holidays now looks like a strategic masterstroke in light of the collapse of Thomas Cook. Brick-and-mortar travel agents in the United Kingdom lost a holiday supplier, and the company has a ready-made alternative on offer.
For an online player like On the Beach, Thomas Cook’s collapse was both good and bad.
On the one hand, it lost a supplier of flights to summer sun destinations — its core market — costing the company around $9.9 million (£7.7 million) mostly in customer refunds and reducing the number of airline seats available for package holidays.
But looking ahead to 2020 and beyond, it stands to benefit from the departure of one of the UK’s biggest travel retailers, and, according to its full-year results announcement on Wednesday, it has an “unprecedented opportunity” to “take additional market share at an increased rate.”
For 2018, though, Thomas Cook’s departure was bad news. Although revenue rose 35 percent to $180.7 million (£140.4 million), pre-tax profit fell 26 percent to $25 million (£19.4 million) for the year to the end of September.
CEO Simon Cooper said he was pleased with the performance given the “difficult general economic climate with the prolonged uncertainty regarding Brexit and the related currency impacts”.
Room For Growth
Cooper founded On the Beach in 2004 and led the company through its various private equity ownerships before an initial public offering in 2015, which valued it at $309 million (£240 million). Today, its market capitalization is $733 million (£569 million).
As well as its main UK presence, it also operates websites in Sweden, Norway, and Denmark, although it’s fair to say they haven’t broken through yet into these markets, with revenues of only around $1.8 million (£1.4 million) in 2019, down 12.5 percent on last year.
One area of big potential, especially in the absence of Thomas Cook is the package travel market through offline travel agents – still a big source of holiday bookings in the UK and elsewhere in Northern Europe.
In what now seems like an incredibly prescient move, On the Bach bought a company called Classic Collection Holidays in August 2018, giving it an additional distribution network of around 1,000 agents.
In March this year, On the Beach added a spinoff brand called Classic Package Holidays, which enabled brick-and-mortar agents to sell dynamically packaged holidays to their customers. This segment made an operating loss of $1.5 million (£1.2 million) in 2019, but the company has big plans for it next year.
“Our ability to now leverage the gap created by the demise of Thomas Cook is massively enhanced by having that offline proposition launched and up and running,” Cooper said in an earlier interview with Skift last month.
Analysts at broker Numis agree and point out that both On the Beach and rival Jet2 should be the main beneficiaries given that nearly half of Thomas Cook’s customer base was served via offline channels (though its own stores and independent travel agencies).
Classic Package Holidays isn’t a significant revenue driver yet — just $0.9 million (£0.7 million) in 2019 — but it could be in the future.
Photo credit: An aerial photograph of Nissi beach Agia Napa, Cyprus. On the Beach has taken a financial hit from the Collapse of Thomas Cook. dronepicr / Flickr