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Sunwing Vacations And Signature Vacations Merge

Two of Canada's major tour operators merge

Sep 29, 2009

TORONTO — Consumers should expect more choice and possibly even lower prices in the vacation industry as two of Canada's major tour operators merge.

Sunwing Vacations announced Tuesday that it will merge with struggling tour operator Signature Vacations and its SellOffVacations retail division under a strategic alliance with U.K.-based TUI Travel PLC. Precise finance details of the deal were not disclosed.

The move will create a larger company that is better protected from the vagaries of an industry that has taken successive beatings from high fuel prices, the economic downturn and concerns about the H1N1 flu virus.

Sunwing chief operating officer Stephen Hunter said the merger will solidify the company's position as the number-two tour operator in Canada and will provide travellers with more choice.

"It's a good combination between Sunwing Vacations and Signature, because Signature is quite heavily focused on Mexico in particular and the Dominican Republic, whereas Sunwing was focused more so on Cuba as well as some other Caribbean destinations," Hunter said in an interview.

"So for our customers they'll have more choice and more frequency of flights as well to all of the destinations."

The head of a travel industry association said the merger will strengthen Sunwing's position in the tour operator market, a move that will likely improve competition in the industry and lower prices as a result.

"I think it makes them a strong player in this market, so that means we continue to have good competition, which will help consumers get the best opportunities and the best pricing that they possibly can," said David McCaig, president of the Association of Canadian Travel Agencies.

The two merging businesses have fared very differently during the recession. Over the last five years, the Toronto-based Hunter family's Sunwing Travel Group has seen revenues increase more than 20-fold from $30 million to $660 million and has maintained underlying profitability.

Meanwhile, First Choice Canada, of which Signature Vacations is a division, lost $20 million in the first half of the current financial year.

Airline analyst Jacques Kavafian of Research Capital described the merger as an "amazing move" for Sunwing.

"The problem with Signature Vacations is it's always been badly managed," Kavafian said.

"It's probably the weakest link in the business in Canada, and now Sunwing can do phenomenally well with Signature because they're getting ($240 million) of revenue and they can almost instantly turn that into a profitable business."

Hunter said Sunwing plans to keep the Signature brand, despite its problems.

"I think the Signature brand has a lot of value," he said. "It's a brand that's been around a long time, and I think with some of the things that we've got planned for it, we'll be able to make it a strong brand again."

He added that the acquisition of the SellOffVacations brand of travel agencies will allow Sunwing direct access to the retail market, which will help the company diversify its revenues and solidify its distribution system.

Sunwing said it's too early to tell if there will be layoffs as the two companies consolidate, but said there will be no changes to staffing levels as this winter's travel season ramps up.

"The good thing about it is Sunwing is still growing, so it's not like we're taking two businesses and saying, 'Okay, we only have 1,000 passengers and we're only ever going to have 1,000 passengers,"' Hunter said.

"Sunwing is growing anyway, so as we continue to grow we'll need more and more good people and there are a lot of good and talented people at First Choice Canada."

The Hunter family will retain control of the new company in partnership with Signature owner TUI Travel PLC, which operates in approximately 180 countries worldwide.

As part of the deal announced Tuesday, TUI Travel will contribute $101 million and its Canadian operations including Signature Vacations to the new venture.

In return, TUI Travel will get a 25 per cent voting interest and 49 per cent ownership in the Sunwing Travel Group.

The vacation travel business, which offers all-inclusive vacation packages, typically to sun destinations like Mexico and the Caribbean, has had a tough time as recession-conscious consumers cut back spending on travel.

Since then, some airlines have begun reworking their operations, slashing the number of destinations they serve and reducing their overall flights to battle a slowdown in business.

In April, tour operator Conquest Vacations went out of business, blaming tour industry overcapacity and price wars. The collapse left vacationing Canadians stranded abroad, with many forced to cover hotel bills and other costs the company didn't pay before it went under.

Two of Canada's major tour operators merge
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Source: CP

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