Fool's Eye View

[ July 13, 2000 ]

Airtours' Holiday Blues

By Nigel Roberts (TMFNigel)

Chippenham, Wiltshire -- Airtours (LSE: AIR) made an announcement today. If you click here (don't forget to come straight back), and read just the first couple of sentences, you will see that Airtours reported the acquisition of all of the shares that they did not already own in a German travel company called Frosch Touristik -- FTi -- for £25.4 million. They then go on to talk about how they believe that the level of tour operator capacity in Germany is unsustainable and will lead to a restructuring of the market, and that taking full control of FTi was a good idea as it will enable them to manage the business during the structural change in the market to ensure that FTi returns to profitability.

Quite interesting, but if you keep reading you will find, tucked away at the bottom, after a trading update, and after some information on corporate activity, the following statement: "Our investment in new markets, in particular Germany, together with the reorganisation of our existing operations will result in profits below our original expectations for the year. However, we do expect significant benefits next year and thereafter."

Ouch! I guess that the directors of Airtours were hoping that not too many investors would read that far, because this sentence of just 37 words was significantly more important than anything contained in the 1200 words that preceded it!

I have to say that I feel the way they have presented this statement is at the least mischievous. If the company is expecting profits not to reach their initial forecast then it is incumbent on them to come out and tell shareholders what has happened and why, and what they are doing to put things right. Airtours have failed completely to communicate properly with their shareholders, who should be outraged. Quite rightly, the market saw through this and immediately hammered the share price, but this hurts the shareholders; the people who should be taking the hammering are the directors of Airtours who seem to have little regard for decent communication with the owners of the business they work for.

So where next for the company? The travel industry is clearly in a bit of a state, and dramatic change is required. It has been rumoured that Airtours is in merger talks with German firm C&N Touristik, (a joint venture between German retailer Karstadt Quelle and airline operator Deutsche Lufthansa). C&N lost a bidding war for Britain's Thomson Travel (LSE: TRV) earlier this year to rival Preussag, who paid about £1.8 billion. If C&N are really interested in buying Airtours they are probably rubbing their hands with glee; now that the directors have shown the way they are willing to treat their shareholders, all they need to do is sit on their hands and wait, and let the management of Airtours deliver the company to them at an even lower price!

Where Next?

• Chris Spink looks at the leisure industry
• The infamous statement
• Airtours discussion board