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Europe’s second-largest tour operator said on Thursday it would take a 50.1 percent stake in Intourist, founded in 1929 and the monopoly provider of travel services in the Soviet era. The deal will include only the assets of tour operating and retails travel shops of Intourist. Hotel’s business won’t be included into the agreement. For the moment, it will be enough for Thomas Cook to acquire a control packet of shares of 50.1%. British operator is ready to pay for it up to 45 million USD (10 million in cash assets and 35 million by assets of Thomas Cook).
“The move into Russia is in line with our established strategy of capturing growth in emerging markets. I am glad we have taken our time to secure a strong partnership,” Chief Executive Manny Fontela-Novoa.
Fontela-Novoa said he planned to target fellow BRIC nations China and Brazil, but warned not to expect an imminent deal. “We’ve been evaluating the Chinese market for a long time. If you think Russia was slow, wait for China. Entry to China will be through an acquisition,” he told reporters in Moscow.
“We are planning to increase the cost of the company by this time, there is no point to announce fixed price now”, explained Aleksandr Arutyunov, President of VAO Intourist. “We’ve joined together two very strong brands,” said Felix Yevtushenkov, Intourist board chairman, vice president of AFK Sistema and son of Sistema owner Vladimir Yevtushenkov. Hopefully, we will eventually see the joint venture as one of the world leaders, he said. Sistema owns 66.2 percent of Intourist, while the remaining shares belong to the Moscow government and GAO Moskva, a company that works on hospitality and tourism projects for the city.
The deal will be finally closed in February 2011 and the full acquisition of Intourist is planned for 2015.
Thomas Cook and its rival, TUI Travel, majority owned by Europe’s top travel agency TUI of Germany, are increasingly turning to emerging markets such as Russia and China for growth as cost savings from the creation of their companies in 2007 are close to being fully realised.
Also, the British and German tourist markets are considered relatively mature.
The company, created by Joseph Stalin in 1929, had a near-monopoly on travel services in and out of Russia as the Soviet state kept close tabs on all who entered and left. Its foreign representative offices were staffed mainly “with people working undercover for the secret services”, says Vladimir Kantorovich, vice- president of the Association of Russian Tour Operators. Many believed its staff at home were spies, too. Following a significant restructuring in 2005, Intourist became Russia’s biggest mass-market travel brand, selling holidays to Russian tourists travelling domestically and also to international visitors.
Thomas Cook will have an option to buy the rest of the company, which will be led by Intourist’s president Alexander Arutyunov, over the next five years. In March, two sources close to negotiations told Reuters that a full takeover of Intourist by Thomas Cook was being discussed as an option.
The Intourist that Thomas Cook announced it was acquiring on Thursday in a $45m (£29m) deal is a shadow of its former self. But thanks to its Soviet reputation it is still a well- known name in Russia and the west. Gone are its network of Moscow hotels, which have either been knocked down or transformed, like the Hotel Ukraina, into glitzy four or five star establishments. Its former flagship Intourist hotel, a stone’s throw from the Kremlin and such an eyesore it was known as Moscow’s “black tooth”, has long been torn down and replaced with the luxurious Ritz Carlton. The only Moscow hotel it has retained is the Hotel Kosmos.
In contrast with the Soviet era, Intourist now has a mere 9 per cent share of the inbound market and a 5 per cent share of outbound travel, which after the Soviet demise became extremely fragmented.
“After the collapse of the Soviet Union, it was very easy to compete with Intourist,” Mr Kantorovich said. “It kept going as an important business mainly because of its vast network of personal connections… but when it had been working in a situation where it was the only company working on the market it had not been known for the quality of its services. You can’t develop good services when you have no competitors.”
Alexander Kazbegi, transport analyst with Renaissance Capital, the Moscow investment bank, said, however, that Intourist’s strong brand name still stood it in good stead. “They have a certain reputation not necessarily for quality but for longevity,” he said. “People aren’t afraid they are going to give them money and then watch them go bust.” He added that Moscow was filled with fly-by-night companies that sold tickets and then disappeared.
Foreign holidays became a status symbol after the Soviet Union disappeared and travel restrictions were lifted. The Russian outbound tourism market has been growing at about 10 per cent a year since 2000 after Russia’s rapidly filling coffers from high oil prices helped cause a consumer boom. Russians have been flocking to resorts in Egypt, Turkey, Dubai and others, although the market was knocked hard in 2009 following the financial crisis. At the height of the market in 2008, 11.3m Russians travelled abroad, according to Rostourism, the state agency.
This year, the market has grown between 20 and 25 per cent, according to Mr Kantorovich, as Russians’ incomes recovered.
Whether Thomas Cook’s hook-up with Intourist will help boost outbound sales depends on whether the UK group can adapt to the peculiarities of the Russian market, Mr Kantorovich said. For example, Russians tend to book their holidays at the last minute, raising the risks significantly for tour operators.
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