Tour operators agree on package to escape MMC

The Office of Fair Trading is close to agreeing concessions from Britain's leading package tour operators that should allow them to escape a Monopolies and Mergers Commission reference into the holiday industry.

Both Airtours and Thomson are understood to be prepared to sanction changes to the way they operate their travel agent subsidiaries in order to avoid a further probe. According to a source involved in the case, the OFT may be ready to issue its report by the end of this week or early next week.

It will be the second time in two years the Government has looked into the issues surrounding the "vertical integration" of the holiday business. The probe follows concerns over the ownership of leading chains of travel agents by the package tour operators that supply them with many of the holidays they sell.

In August 1994, the OFT concluded that there was vigorous competition between companies, and a wide range of packages available, but it warned the industry that customers should be given impartial advice.

Last year the OFT made a commitment to follow up its 1994 investigation to see if the major companies had made the required efforts to inform customers of the links between the companies that sold and those that supplied the holidays they were buying. It said it would check to see if consumer choice was being restricted by "directional selling" of one tour operator's product to the exclusion of other holidays.

The OFT will focus on the practice of requiring customers to buy expensive insurance policies in order to qualify for discounts on package holidays, reductions that smaller travel agents cannot afford to match.

The OFT will also look at bonus payments to counter staff to encourage them to sell in-house holidays, and the ownership link between the tour operators and travel agents.

Lunn Poly, which has about 800 shops and accounts for a quarter of the retail trade, is owned by Thomson, which sells 30 per cent of the UK's annual 8.5 million package holidays. The 700-strong Going Places chain is owned by Airtours.

Also of concern to the OFT is the power of large agents to demand higher rates of commission from outside tour operators in return for putting their brochures on shelves. Frequently, the absence of an agreement is used as the pretext for not putting a rival operator's brochures on the shelves.

Earlier this year First Choice, the third-largest tour operator, was in dispute with Lunn Poly for four months, during which time its brochures were excluded from Lunn Poly's shops.

Both Airtours and Thomson are known to be extremely keen to avoid an MMC investigation. Thomson is owned by the Thomson Organisation of Canada which, as part of a drive to focus on its electronic information services, sold its UK newspaper interests recently and is understood to be looking at its options with regard to the holiday interests. A reference would complicate any sale or flotation.

The issue of the OFT's report comes at the end of a volatile summer for the holiday companies. Last month Airtours said the better alignment of supply and demand this summer meant it would scrap its brochures in order to increase prices on late-bookings.

Sources in the industry say the announcement backfired because customers put off buying the more expensive holidays and they had to be reduced again to prices below those prevailing before the increase.