By Humphrey Carter and Marc Jones
PALMA and LONDON
THE Balearic tourist industry reacted cautiously to the news yesterday that German-owned Thomas Cook is to buy British package holiday rival MyTravel creating Thomas Cook Group PLC, a travel giant worth about 2.8 billion pounds.

The merger, expected to be completed by June, establishes the new group as the new king of the Balearic holiday industry accounting for 1.5 million tourists per year and dominating the UK, Scandinavian and Canadian package holiday markets. The birth of a new mega-travel operator has made the Balearic small and independent hotel sectors nervous. Sources said yesterday that with, less and less operators in the market, their powers of negotiation, especially when it comes to seasonal room rates, get weaker and weaker.

Majorcan hotel federation sources, while cautious, admitted that it is “not all bad news. At least it is Thomas Cook which is taking the lead in the merger, not MyTravel.” Thomas Cook, which is owned by stores group KarstadtQuelle will hold 52 percent of the new entity, with the other 48 percent controlled by MyTravel's shareholders. The new company is to be called Thomas Cook Group Plc and will take around 19 million people a year on holiday.

MyTravel Chief Executive Peter McHugh said the deal would create a company with annual revenue of around 8 billion pounds and close the gap on Europe's biggest travel operator TUI AG.

Last night, travel sources in Majorca hinted that TUI may respond to Thomas Cook's move and was studying various purchase and merger options.
The package holiday industry has seen a decline, six years ago, 67 percent of Britons coming to Spain were package holiday markers, by last year, that figure had fallen to 36 percent, as growing numbers of holidaymakers put together their own trips using the Internet and low-cost airlines. Companies are attempting to counter this scaling up their businesses to make savings, as well as branching into growing leisure markets such as cruises. MyTravel and Thomas Cook said they expected to make cost savings of 75 million pounds a year from combining the two businesses although it would take at least two years for the cost savings to come through. The director of the Spanish Tourist Office in London, Ignacio Vasallo, said that Majorca could be one of the destinations to suffer as a result of the group's cost cutting exercises.

He also said that while the merger will give the Thomas Group PLC a near “monopoloy” over hotels in Spain, it will also lead to a reduction in flights to destinations like Majorca.

However, Vasallo believes that any vacant landing and take off slots at Palma airport will be quickly snapped up by the low cost airlines and that, while the number of package holiday tourists may drop, independent traveller figures will increase.

He urged the hotel sector to stop licking its wounds and start expanding their internet sales and direct bookings services.
He said that the industry has been braced for “something big to happen” as companies adjust to new technologies and the changing market.” Manny Fontenla-Novoa, who will be the joint chief executive of the new company stated yesterday “We believe in the future of the mainstream package holiday market, which will continue to be a core product of out ongoing business strategy. An immediate priority of the group will be to grow the independent travel, online and financial services segment of the business, where we see significant growth opportunities.”

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