Kuoni Travel Holding CEO, Peter Meier, tells Raini Hamdi that ‘focus’ is the key to triumph in a fast-changing environment, which is why the group is lopping off its tour operating division and concentrating on two other core divisions
In selling your tour operating businesses because you want to focus on the divisions that have ‘attractive longterm potential’ – isn’t that admitting there’s little future in tour operating?
That’s not our message. Tour operating has a bright future. A lot of the business we want to focus on serves tour operators. GTD (Global Travel Distribution, a B2B provider of accommodation and land components, ie, GTA) and GTS (Global Travel Services, comprising Group Travel and Destination Management Specialists) have tour operators as customers, so we absolutely believe in that business model.
So why exit tour operating?
We believe that in a fast-changing environment, we’re better off focusing on the global B2B businesses where we have a leading position. It does not mean we’re becoming a single leg company: GTD, GTS and VFS (Visa Facilitation Services) are all different businesses. But selling the outbound units (Kuoni Switzerland, UK, Benelux, Scandinavia/Finland, Hong Kong/China and India) reduces complexity for us. It does not mean they are bad or there is something wrong with them. It’s like having children…or say, even for you as a journalist, can you can follow one, two, three companies? Yes. But can you follow a thousand?
But you don’t have a thousand, only a handful of divisions.
Yes, but they are all very different businesses. Kuoni Switzerland for example operates in a mature market, while the tour operating model is different in the Nordics. Those six units don’t buy or sell together, so we have six IT systems, six ways of distribution, etc. And that’s only tour operating. Now add the GTD, GTS and VFS businesses, and the question becomes, can you handle that complexity?
Our conclusion was, sure we could develop the tour operating side, but if we develop everything at the speed of 40 while the world is changing at 50, we would be in deep trouble with all the businesses.
So you pick the few you can focus on and go at a speed of 50.
And you chose the ones with the most upside.
Yes, from our perspective, the growth in travel is clearly going to come from Asia, where the middle class is rising. We want to focus on businesses where there is more growth potential than those outbound units which are dominated by Europe, a mature market with limited prospects.
That’s the thing – so why should anyone buy them?
We’re not looking for someone who will have to fix a troubled child, but someone who can take the business to the next level.
It’s different back in 2012 when we exited some of our loss-making tour operating businesses in Europe, ie, Kuoni Italy, Spain, our activity in Russia, etc. In our view, they were far too small, did not have good standing in the market and would not make sufficient money even in good times. So we said at the time we’d either find new owners or close them.
In this case, the businesses are money-making. Sure, the business in the Nordics last year was not money-making for certain reasons, including a super perfect weather in the Nordics, but it was money-making for 10 consecutive years. Overall, the businesses have a certain size and position in their markets.
How much upside do they have?
There is a lot but of course it depends on the market. If you take the smaller markets such as Benelux or Hong Kong, of course it’s fair to say the upside is limited even though they have good market positions. If you take the larger markets like the UK, where the market is large and the brands are premium, the potential is good. We started some years back doing our own retail stores in the UK; we have a partnership with John Lewis (chain of department stores throughout Great Britain) and all this paid off.
When we informed the local management in the UK about the sale, they were not unhappy actually. They had seen in, say, budget discussions, when they wanted to open a couple more stores and we said, OK, you could do half, we like your plan – but your sister or brother has a better and more attractive plan. We’re not helping them at all and so it’s a big opportunity for them if an owner comes along and really focuses on that business – they can grow much faster than if they are second priority in the Kuoni group.
So who will buy you think?
I believe companies who have a similar agenda to us – they want to focus. They are already playing in those markets and they want to grow the business even more by buying something that has the same synergies or can be vertically integrated.
When you choose children to give away, does it hurt?
It is emotional, particularly Kuoni Switzerland – the mother of all our activities. But when we were in decision mode, the emotion had to stay outside of it. It is our job as managers to go by the facts, though it is important we respect those emotions. Investors could see the story but for those in Kuoni Switzerland, it was tough and they had a double shock as, the next day, the Swiss National Bank decided to give up the peg to the euro.
How do you continue operating something you know would be sold?
It’s important people don’t think once we’ve made the announcement, we put the brakes on the outbound businesses or hold back doing something thinking ‘maybe the new owners would not like it’. No, we continue with the plans and activities for all the divisions, including outbound, that have been defined in the budget we want to achieve this year. All the MDs report to Rolf (Schafroth), who is not at all involved in the sale.
What’s your plan for the ‘new’ Kuoni?
GTD, which is managed by Ivan (Walter), knows where it wants to run and will run fast. Similarly, VFS; I was in Dubai and again I saw how innovative they are. The new area is GTS; we want the Group Travel and Destination Management Specialists units to come together but this is something we can build on only after we have progressed with the sale of the outbound units.
With the proceeds from the sale, will you be on a buying spree to strengthen your GTD and GTS divisions or even create another new core business?
For this year, our priority is to find new owners of the outbound units. Once we’ve done that, we will look at what the potential avenues are.