The deal which saw online travel agency Travel Republic bought by a subsidiary of Middle East airline Emirates heralds a push by the airline into high-end long-haul tour operating.
Industry observers say they expect the Kingston upon Thames-based retailer to continue growing at the rate that has seen it become one of the UK’s largest independent agencies over the past six years.
No details of the deal with Dnata (which was believed to have been the only party in the running although Travel Republic has claimed there was wider initial interest) have been released, but one source estimated the company will have been sold for six or seven times its annual profit.
Travel Republic’s latest annual results, for the year ended March 31, 2011, reported a post-tax profit of £7.7 million on a turnover of £41 million, up from £38 million in 2009-10.
That potentially adds up to a payday of up to £60 million for the agency’s three director – Kane Pirie, Chris Waite and Paul Furner – for a company that was unheard of six years ago.
Although official confirmation from Dnata said 75% of shares had been bought, the deal is for 100% of Travel Republic, of which 25% will continue to be owed by the firm’s three directors.
As was confirmed by Pirie yesterday, usually in deals of this sort buyers tie in existing management with an earn-out agreement based on targets over three to five years after which time the remaining shares will be bought subject to performance.
In a statement released yesterday, Pirie confirmed all three directors will remain in post and a five-year earn-out had been agreed. he said: “There are no plans to change the strategy of the business.
“We are still pushing for growth in the UK and other European countries. We will also now be expanding further afield but this will only create more opportunity not less.
“There are no plans to change the wider Travel Republic team (ie zero redundancies). We are proud of the team we have built over the years and the fact we have never made anyone redundant. We only expect the team to continue to expand.
“In other words, I don’t see that very much is going to change at all that should cause any of our staff or customers concern.
“Personally I am very proud of what we have been able to achieve as a team of people (including everyone in the company) both in building this business and delivering it into the arms of an exceptionally strong group.”
Steve Endacott, chief executive of On Holiday Group, said he expected Travel Republic to continue growing at the speed that has catapulted it into the top echelon of UK travel retailing websites over the last six years with the backing of the Emirates group.
“This is a sensible move for any airline. The Travel Republic model is currently focused on beach but the technology could easily be stretched to be the foundation for a long-haul upmarket tour operation for the airline.
“As well as a profitable beach operation they have bought a management team and a technology business that can deliver a tour operation for the airline.”
Travel Republic has recently expanded into Europe with operations in markets such as Italy and Spain and soon Germany giving Emirates multiple source markets for its global flying programme.
The buyout comes as the UK’s dynamic packaging sector – after unprecedented growth on the back of the emergence of the low-cost airlines – faces a period of change and uncertainty.
In April 2012, new Atol regulations will seek to require agencies like Travel Republic to acquire a licence, leading some to predict other OTAs will try to sell to avoid the costs of compliance.
But Endacott said this was nonsense.
“It’s very naive to think Travel Republic has sold out at its peak,” he said. “This is a deal about private individuals taking money off the table and I would bet there are some pretty heavy incentives to grow over the next three to five years.
“If you think dynamic packaging is at its zenith you are fundamentally wrong. Low-cost carriers are adding routes and companies like Travel Republic will be there to sell them.
“Even if they do not package it, customers will need to buy their accommodation from somewhere and sites like Travel Republic sell accommodation just as much as they do packages.”
Access to guaranteed product has been an issue for many dynamic packaging OTAs as charter airlines seek to control distribution more carefully.
This has led some OTAs, most notably On the Beach, to look to take committed product for the first time by contracting directly, although this remains a small part of the overall business.
More problematically, Ryanair has sought to freeze out agents totally from its site by adding a verification step, although major OTAs are understood to have found a way around this.
The contrasting approach of Travel Republic to that of Manchester-based On the Beach – its most like-for-like competitor in the UK – is interesting.
The latter worked closely with the CAA to agree an innovative trust account-based Atol licence under which it protects all of the product it sells ahead of the changes due to come in this April.
There’s no word on how Travel Republic intends to react to these changes, but it famously fought and won a court battle with the CAA after being prosecuted for breaching consumer protection law.
The Dnata deal by no means guarantees Travel Republic will now get a licence. Many OTAs are expected to exploit a loophole in the law by acting as ‘agent for the consumer’.
Managing director Pirie is understood to have used his position on the board of Abta to push for a solution that could see the association drop its long-held antagonism to trust accounts. This was one option being investigated by Abta.
The association has also considered applying for Atol Approved Body status.
However, Abta stated in its submission to a Department for Transport consultation on Atol reform that it was unlikely to pursue this given the stipulations on Approved Bodies.