Thomson cuts First Choice sales in holiday bid battle

THOMSON TRAVEL has pledged to hit back at Airtours' pounds 800m hostile bid for First Choice with a fresh plan to increase its distribution capacity by 50 per cent while dramatically cutting the number of First Choice Holidays it sells through its Lunn Poly travel agencies.

The initiatives are part of Thomson's plans, announced last month, to add a million extra holidays to its existing capacity in an attempt to prevent a combined Airtours-First Choice from displacing it as the UK market leader in package holidays.

Thomson wants to boost its holiday sales by significantly increasing the size of its Lunn Poly chain through both organic growth and acquisitions. It also wants to sell more holidays through new media such as the Internet.

But in a move that could alert the competition authorities, Thomson also plans to cut the number of First Choice holidays it sells through its network from 400,000 a year to an estimated 100,000. "We have given First Choice a tremendous amount of support over the last year to 18 months. We simply won't do that any more," said Paul Brett, Thomson's chief executive.

The practice of directional selling, under which a tour operator deliberately pushes its own holidays through its chain of travel agencies, was looked at by the Monopolies and Mergers Commission when it investigated the travel industry in 1997.

However, it sanctioned the practice as it had received no complaints from customers. But the UK travel market has consolidated significantly since then and the possible restriction of consumer choice could run into problems with the competition authorities.

The Office of Fair Trading confirmed yesterday that it would examine the issue to assess how it would affect competition and to ensure that consumers know what they are getting.

"If there were complaints, we would look at it. We would have to see if there were competition issues," an OFT spokesman said.

Airtours and First Choice shrugged off the Thomson campaign. First Choice said it had anticipated such a move. Airtours said Thomson would harm its own profits if it stops selling First Choice Holidays.

Thomson also said yesterday that after spending two weeks visiting institutional investors it was confident that most shareholders supported the expansion strategy.

Thomson also appeared to back down further yesterday over its bellicose remarks that it must maintain the number one position in the market. "We want parity. We are not hung-up over the odd percentage point," Mr Brett said.