On the Beach looks to lap up travel busi­nesses caught in tide of pan­demic prob­lems

The Daily Telegraph - Business - - Business - By Han­nah Ut­t­ley

The coro­n­avirus cri­sis has caused de­mand for travel to nose­dive and sent air­lines into freefall, but hol­i­day re­tailer On the Beach is keep­ing its eyes peeled for deals.

Bri­tain’s big­gest on­line travel agent has built up a £50m war chest in an at­tempt to in­crease its mar­ket share by scoop­ing up strug­gling ri­vals struck by the pan­demic.

On the Beach has not been shielded from the havoc in the sec­tor, how­ever. On Tues­day it slumped to a £34.1m loss for the six months to April, in con­trast to a profit of £11.9m a year ear­lier. Sales plunged by two thirds dur­ing the pe­riod to £21.4m, while costs re­lated to Covid 19 and the can­cel­la­tion of book­ings set the busi­ness back close to £35m.

On the Beach, which also has ac­cess to a £75m un­drawn over­draft fa­cil­ity, has been us­ing the time in lock­down to bulk up its bal­ance sheet. The com­pany, which has seen its val­u­a­tion drop by more than half to £463m by the cri­sis, is well placed to win mar­ket share, ac­cord­ing to an­a­lysts at Peel Hunt. “Pre-lock­down [On the Beach] had boosted brand aware­ness to un­prece­dented lev­els, and has spent lock­down pro­gress­ing with key in­vest­ments in tech­nol­ogy.

Now with plen­ti­ful liq­uid­ity it can in­vest in or­ganic growth or M&A (or both) as op­por­tu­ni­ties arise,” they say.

“Any com­peti­tors that make it through Covid-19 will not be so well-re­sourced.”

On the Beach has been ex­plor­ing ways to ex­pand its in­ter­na­tional busi­ness af­ter launch­ing web­sites in Swe­den, Nor­way and Den­mark.

Katie Cousins, a travel an­a­lyst at Shore Cap­i­tal, says any fur­ther ac­qui­si­tions are likely to take place over­seas in coun­tries such as Hol­land, Bel­gium and Poland. How­ever, the prized goal is to gain a pres­ence in Ger­many. “Pre­vi­ously the busi­nesses in Ger­many have been quite highly val­ued and been a bar­rier for On the Beach to get into that mar­ket,” she says. “What the last few months has done is re­set the whole Euro­pean pack­age hol­i­day land­scape. The travel plat­form mar­ket is so frag­mented that there will nat­u­rally be some com­pa­nies that are dis­tressed with low valu­a­tions.”

Si­mon Cooper, chief ex­ec­u­tive of On the Beach, is re­al­is­tic about the dev­as­tat­ing im­pact of the pan­demic on the travel sec­tor. The 47-year-old, who founded the busi­ness in 2004, said: “If you think back to 2009 where dozens of travel com­pa­nies col­lapsed, that was un­der the pres­sure of the global re­ces­sion, which led to a shrink­ing of the econ­omy of about 10pc and travel shrank by 30pc,” Cooper told in­dus­try ti­tle TTG. He be­lieves more col­lapses will hap­pen. “That then leads to op­por­tu­ni­ties to ac­quire dis­tressed or brand as­sets or what have you and take mar­ket share for­ward, whether that’s in the UK or in­ter­na­tion­ally.”

Some ob­servers are less op­ti­mistic about the com­pany’s M&A prospects. “We have con­cerns that the busi­ness model does not fare well in dis­tressed travel en­vi­ron­ments, with dif­fi­cul­ties gain­ing mar­ket share re­flected in ail­ing his­tor­i­cal earn­ings,” say an­a­lysts at Jef­feries. Any deal mak­ing is un­likely to be im­mi­nent, says Cousins, as On the Beach pri­ori­tises get­ting cus­tomer book­ings in the bag.

The Costa Blanca con­tin­ues to be a favourite with tourists, as On the Beach aims to ex­pand its op­er­a­tions with the prized goal of a Ger­man pres­ence

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