Travelzest

Source: Stock Market Digital

Date :10/05/2007 17:43:09

How Chris Mottershead, CEO of Travelzest plc created a growth business in a declining market.

By John O’ Hanlon with Kiron Chavda

Actually the holiday industry as a whole is not in bad shape according to Mottershead, and he ought to know. In the late 90s as Managing Director he grew Airtours into the UK’s largest holiday company and then turned its North American business round from a $35 million loss to the same level of profit. In fact he has been responsible for much of its success over the last decade.

As managing director of TUI UK between 2001 and 2004 with responsibility for Thomson Holidays, Lunn Poly, Travelhouse and other UK-based businesses he steered the company through one of the most difficult periods for travel (following 9/11) and still achieved record profits, taking Thomson Holidays back to the number one position by transforming. The travel industry may be having its problems, but it gets stronger every year. “It has grown every year as long as I can remember. The volume of traffic in and out of the UK continues to grow. We are in a positive market. This is not an industry in decline!” he insists.

He is a man who has never shirked a challenge, so it isn’t hard to see why, rather than continue to work in companies with whose drawbacks he was only too familiar, he took the entrepreneurial route and decided to create a new business tailor made for the investors he needed to back it. The big players on the high street had a record that made the City nervous, he concluded, having looked at the existing business models in the sector. In Travelzest he set out to create a business that avoided the negatives and would therefore attract investors and customers equally.

A model for our times

Mottershead saw an opportunity to develop from scratch a model that had been difficult to achieve in the old-style travel groups. “Having taken Airtours to the UK number one position in the 1990s, and more recently having taken Thomson back to the number one position, I have seen the industry from the top,” he explains.

“That’s what gave me the ability to create this new vision. If I hadn’t been able to bring that experience, funding it would have been a problem. There are not that many listed travel business: it is a difficult area for people to invest in because it has been asset intensive and because most of the revenue has been generated in the traditional holiday season. People didn’t like the fact that all the profit was dependent on performance from July to September. They didn’t like the fact that huge levels of guarantees are paid in advance; that these companies owned retail stores, and that it was a high turnover, low margin business.”

Travelzest is a lean business. It has no high street presence and is designed to capture business throughout the year. “We have established a travel business where hopefully people can’t point to those old pitfalls, and I think that is why it has caught people’s imagination,” he says.

It certainly seems to have done that. The year to October 31 2006 saw acquisition-driven growth of 70 percent in turnover, to £19.2 million and more than £400,000 pre-tax profit. But Chris Mottershead views 2006 as work still in progress. “Our brokers suggest that 2007 will reflect the true level of the group more appropriately, with EBITDA of around £4.6 million on a turnover in the region of £36 million. That of course is not taking into consideration any further acquisitions we may make.”

So Travelzest has grown by attraction rather than by going out hunting, he says: “Our model is quite straightforward. Nobody can run one of our businesses if they have not sold out completely and taken shares in the group. All our MDs are either shareholders or have share options, so they are trying to grow shareholder value.” It is vital, he believes, to guard the entrepreneurial spirit that created the group companies in the first place. No attempt is made to consolidate the businesses.

Focused companies

The first company in the group, a France specialist called VFB, which had pioneered the idea of independent holidays in France and added the word ‘gîte’ to the English vocabulary, was listed on OFEX. It formed a good basis for the group. “There are two areas of growth in our market,” he says. “One is online booking. More people are buying their holidays on the internet and using it to find the best deals. The other is the specialist holiday market. Customers are going further afield and are readier to go to unfamiliar places, or else they are looking for more diverse elements in their holiday. The market that is declining is the flight/hotel package.”

The package holiday suited people well enough when they were prepared to buy a ready made product, though why that should be so is a mystery to Chris Mottershead. “I have never understood why someone who works hard all the year should look, in the two weeks he has for relaxation, for the cheapest available holiday!”

At any rate, the holiday industry is moving decisively towards specialised and customised holidays, so that is where Mottershead positioned his new business. The listing was moved to AIM because of its stronger credibility among the investor community. The flotation raised £5 million with which to fund further acquisitions, and Travelzest was soon expanded with the addition of Best of Morocco and Holiday Express, which brought with it two websites, holiday.co.uk and flight.co.uk, which have since been relaunched as a key part of the group’s infrastructure.

Over the last year there have been a number of further acquisitions. Peng travel is a naturist specialist, Fair’s Fare a leading airline travel planning service. More recently The Tapestry Collection, focusing on holidays in Turkey, and the WOW House Company and Itravel2000.com, Canada’s leading online travel agent, were added to the portfolio. As if all that didn’t make 2006 a busy enough year, a new start-up was also added to the group in the form of Faraway Holidays, an organisation that provides tailor made holidays to exotic locations.

Faraway was added partly opportunistically and partly because it fitted so well with the vision for the company. “We are a listed business so as well as exciting customers we have to excite the shareholders too,” says Mottershead. I relied on acquisitions and the earning enhancement they bring to grow the business to the next level, but there are opportunities to grow new businesses too and we believe there should be a balance between the two. In the case of Faraway, we already owned the domain name, and at the right moment we were approached by a small team of individuals who had previously created business from scratch on a number of occasions. I reasoned that rather than buying a business, why not get these people, to do it for us using their knowledge and expertise. I wouldn’t go into a start-up without that confidence in the people. It was an exciting opportunity to get into the long haul arena and one of the growth areas of the industry – exotic locations in the Far East, South America and elsewhere.

The funnel

The structure of Travelzest allows the specialist companies to filter off its minority customers from the volume business portals like holiday.co.uk and flight.co.uk. Chris Mottershead calls this the ‘funnel’ approach. “These are holiday portals with millions of people visiting, but the number of people wanting specialist holidays is in the tens of thousands. If we can provide a funnel through an online distributor that offers packages, and provide the opportunity for people to create their own holidays through dynamic packaging, we can capture these visitors. By offering specialist holidays, and tempting them with trekking in Cambodia or river cruising in France for example, we only need a very small percentage to make a very big difference to the specialist tour operators.”

In the funnel approach, then, the online holiday business makes its money in the usual way while tempting a small number to try a specialist holiday. It’s a proactive way of selling, he says, that complements the reactive sales gained by directing enquirers, who already know precisely what they want, from search engines to the specialist’s own website. “If you tap in Holiday to Kalkan into a search engine, you will be directed to Tapestry Holidays as a Turkey specialist. That is a reactive response. You have made sure those words drive those customers to your website. The proactive way is using holiday.co.uk, and there is none better on the internet, to catch people’s attention through a general portal.” Nobody else is able to offer the model of an online holiday portal linked to in-house specialist tour operators, together providing the experiences customers value, he asserts.

The internet has levelled the playing field between the large and the small operators, and particularly where specialist operators are concerned. A package holiday is a manufactured commodity whereas more customers are asking what is available on a certain date or location. Where people used to go into a high street travel agent and book a holiday through one of the large operators, now they Google their preferences, and they are more likely to end up on the site of a specialist than in a corner of a generalist.

Travelzest reflects the way people live their lives today. No longer are they happy to organise their time in blocks to suit the old framework of school terms, with holidays at fixed times and for fixed periods. They know about places their parents had never thought of visiting, and they want to see them. “The industry has changed and moved,” Mottershead summarises. “We have to be sure we can change and move too. For today and going forward I am sure we have the right model. We are very flexible, very asset light, decentralised. We don’t pay travel agents’ commission. We don’t guarantee accommodation; we don’t buy our flights in advance; we are selling our holidays on a value proposition and gaining a good market. That is a model for today. It is a model for tomorrow.”