So the market has ruled once again and the ACCC has allowed the process to begin to create a new travel duopoly, but what else is at play besides Qantas?
Stella Travel services has once again made headlines following on from August 2009 when it announced a preferred retail agreement with Qantas Holidays has now evolved into a merger with Jetset Travel group. Last years preferred retail agreement made this merger much more attractive to Jetset and you would think much harder for the competition watchdog to examine the true impact. The ACCC after doing an apparently extensive review of the merger has approved the merger to create an expanded Jetset retail travel network. Stella Travel services operates Harvey World & Travelscene American Express and will be joined by Jetset owned Qantas Holidays & Qantas Business Travel.
The merger has to be a warning shot at the Queensland based Flight Centre who has continued to expand its operation to around 2000 shops/locations in 11 countries around the world but reaches 40 countries with its FCm Travel Solutions corporate network. Flight Centre has actually been fairly quite on the press release front since it called off Singapore Airline contract negotiations back in July 2009, so its likely they have something big planned following the announcement last week that they were cashed up with a net cash level of $144.3 million.
Qantas influenced deal?
It is interesting according to Smart Company back in May 2010 that Qantas (58%) the major shareholder in Jetset advised that they would support the deal, its unclear how other travel agents will react having their supplier growing its own retail & wholesale travel network. Qantas has much more interest in this deal working if they want to continue to hold their market share in the leisure travel market against VirginBlue & Tiger Airways.
Virgin feeling blue?
Virgin Blue will likely have expand their retail travel network quickly and will also look at purchasing some independent operations as Jetset Travelworld is one of the few smaller travel companies based on market capitalisation and have a strong focus towards their main shareholder Qantas. The domestic market has been slowing and the strength of the Australian dollar has boosted international travel but VirginBlue faces a double blow with their withdrawal of V Australia flights to South Africa and Phuket, Thailand this week. The only upside is that Virgin has announced a partnership with Etihad to launch non-stop flights to Abu Dhabi, it will be interesting to see how much the new Jetset Travel group promotes the VirginBlue flights to the middle east.
Share market response
The news was very positive for JetSet TravelWorld’s share price which made up the losses it had sustained since the beginning of the 2010/11 financial year and it increased the groups market capitalisation by around $36 million which will help fund costs typically associated with the merger. The sharemarket will likely be closely watching the share price to see if this was a one-off event or will Jetset return to at least its January 2010 levels.
Flight Centre shares also rose slightly in today’s trading but unlike JetSet’s constant downward trend, since the beginning of the 2010/11 financial year the Flight Centre stock price has already risen 25.69%. The size of the Flight Center by market capitalisation being 11 times the value of the JetSet Travel Group is also a strong reasoning behind the approval by the ACCC that the market would not substantially lessen competition in the travel market. This obviously excludes a view towards any independent travel operators who are being squeezed out of the industry and so begins the steps of building a new duopoly in the Australian travel market and welcome the new travel super group JTG Stella.
What is the website impact?
The ACCC advised their decision was in part based on how consumers are now searching for the best deals online forcing travel agents to compete harder on price and service but also more suppliers have new ways of reaching customers direct. Looking at the combined website traffic of the new Jetset Stella group its clear that even with market capitalisation of 11 times its competitor FlightCentre only has about 50% more unique visitors to its primary website.
What is interesting is that the Jetset Stella Group is the only travel website I checked that is actually starting to show decent positive growth consistently over the past few months but the sample size for the Compete analytics is not significant enough to make any predictions on how long it will take before they pass Flight Centre but it looks good for 2011.
I have to clarify that Flight Centre like a number of other travel sites operates several subdomains which split up its overall traffic estimates and make it harder to do a detailed analysis quickly. Also much of the Qantas Holidays and Qantas Business travel packages are promoted directly from Qantas.com.au which also mask the true website traffic the new Jetset Stella group will be attracting but all things equal I think they already have a strong presence online, but could dramatically improve it.
What impact on suppliers?
Suppliers like Tourism Technology who sell Calypso a travel management system will likely have the most too lose from the Jetset purchase as Stella Travel uses their Calypso platform. From the Jetset group only Qantas Holidays currently use Calypso so it maybe put out to tender once the merger completes. It will be a tough decision to move Qantas Holidays away as they have been using Calypso for 16 years, but as they say change is as good as a cheap holiday. It is always a risk for suppliers when their customers merge as to decisions on which platform to centralise are often made with less planning and more personal preferences of management or even influenced by financial incentives. There is a clear benefit for staff training and streamlining the sales process by having one travel platform and since Flight Centre also use Calypso there maybe some tough discussions ahead.
What impact on consumers?
It will be interesting to see how websites like Expedia who continue to fight to dominate both paid and organic rankings will step up their efforts to ensure they dominate the online field. Groups like Expedia & Kayak may even increase their Travel Agent affiliate product which seeks to replace platforms like Calypso and give independent operators the scale in purchasing power to compete with Flight Centre and Jetset Stella Group. So its likely it will be an improved level of service and increasing competitive offers but like most good things they will come to an end through bankruptcy of one of the groups or a truce is called and consumers get duopoly pricing again!