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Has the French tour operating industry positioned itself?

Relying on a national market more limited than those of Northern European countries, can French tour-operators resist the trend towards European concentration? Nothing is ineluctable. While Nouvelles Frontières has entered the circle of the German group TUI, the group Fram resists successfully, and the arrival of the Accor in Club Med might illustrate a third possibility: the constitution of an international heavyweight.

"France needs two or three organisers on a European scale to face up to the German and English monsters," warned Gilbert Trigano back in 1987, when he was the head of Club Méditerranée. The years went by, but the sector continues to be very framented. The attempt to merge Club Méditerranée Nouvelles Frontière on1989 could have lead to a heavyweight in the sector, but it was cut short. since then : notjing, or nearly. At least until, June 11th, when it was announced that the group Accor had taken a participation in the capital of Club Mes, reviveng speculations about contituting a powerful french tourism group.Will French operators find in the incoming activities a new source of growth to compensate the weakness of the tourist departures abroad?As far as tour-operating is concerned, Northern and Southern Europe constitute two hyper-competitive universes, but they are completely distinct from one another. The first benefits from a powerful, structured market. The second suffers from fragmentation and a drop in demand. France, first and foremost a receptor country, falls mostly into this category. The trade remains very heterogeneous – under-developed compared to England and Germany where mastodons such as World of TUI, Thomas Cook, My Travel or First Choice rule… “There isn’t room for more than three giants in the European tourism,” declared the general manager of Thomson Travel, bought in 2000 by TUI, already in 1998. Seven years later, the French market is still stagnant. There is not enough to go around to support the mass arrival of new major operators. During this time, The European market may expect moderate growth by 4% for 2004. “Southern Europe has not yet reached the level of development of Northern Europe in terms of travel practices,” analyses René-Marc Chikli, president of the Centre d’études des tour-operators (Ceto – French centre for tour operator training), “but the Italians and Spanish are beginning to work very well. We’re taking our first steps, but the strong poles and the major concentration phenomena seen in the models of Northern Europe will certainly be constituted in these areas.”Of the 300 French TOs, only Nouvelles Frontières had resolutely opted for a strategy with a vertical type of concentration, German-style. Its parallel growth in several trades, very demanding in terms of capital, weakened its financial structure and the group was finally bought out by the number one worldwide: TUI (ex-Preussag).Powerful on its national market, the group Fram benefits from solid family-oriented positioning, but with limited possibilities for development. Yet, it is nonetheless the only truly French independent with a consequential size on the tourism market. Proceeding at its own rhythm, without calling in sources of financing other than its own investment capacities, Fram is also trying to establish its business according to the following triptych: tourism production, club hotels and distribution network. It is also trying to master, as much as possible, the full chain of services, particularly at preferred destinations in the Mediterranean. The hotel chain Clubs Framissima now has eight links, while the network Fram Agence, active since 2001, is targeting one hundred outlets in France.Finally, still in the lead, despite a significant drop in its turnover in 2002 and 2003, is Club Méditerranée. The only French TO ranking in Europe’s top 10, and also the only one to benefit from a truly international renown, the group is beginning to reap some profit from its recovery plan. Lowered fixed costs, elimination of loss centres including Club Med World Montréal, and the placing of the Oyyo concept on standby last year. These measures are the answer to a need to go back to the basics, following a diversification phase launched just prior to the great tourism crisis. Conceived as the constitution of a complementary group of activities, all of which profit from the Club’s powerful notoriety and allow for a distribution of business throughout the year, the buyouts and launches happened at the wrong time. The acquisition of Jet Tours , the networkof Forum Voyages agencies, Gymnase Clubs and the launch of the Club Med World concept and the village for trendy techno youth quickly exhausted the group’s financial limits. Today the club is recentring on historic products – village vacations – and is planning to start commercialising them, which used to be the exclusivity of the Havas Voyages network and a few agencies fullyowned. The highpoint of all these recovery manoeuvres was undoubtedly reached last month with the arrival of Accor in the Club’s capital as the biggest shareholder.Tempted to create a diversified tourism pole in tour-operating through the buyout of several brands federated under the name Accor Tour, the French group finally gave up on tour-operating in 2003 to reduce its activity to the congruous portion, through its subsidiary Go Voyages. Since it did not reach the critical mass for a low-profit sector, it openly declared that it would pursue only one objective: to direct tourism clientele towards Accor hotels. Nonetheless, this development phase has resulted in fine assets: 200 leisure hotels, including some exceptional products in Egypt, Morocco, Polynesia, Mauritius; a small network of Coralia club-hotels, a leader presence on the wellbeing tourism market with Thalassa International; and above all a worldwide marketing network, with some 6,000 travel agencies, with Alliance T, built up around Carlson Wagonlit Travel (which recently acquired Protravel), Selectour and partnerships with Globalia in Spain, CIT in Italy, RTK International in Northern Europe, …The Accor group’s acquisition of shares in Club Med revived questions regarding where the group wants to stand in this sector. Can the search for the critical size lead to a regrouping of all Accor’s leisure activities under the guidance of Club “ GO experts”? The merger currently taking place between Accor Casinos and the group Lucien Barrière is similar. This hypothesis would fall into the category of searches for synergies and the exploitation of the undeniable know-how of the Club’s teams. It naturally runs up against the difficulty of the financial package and the complex management of the blend of Accor brands with the Club Med brand.Time will tell if the managing directors of the two groups take this direction. In a world of tourism with global risks, critical size is a major case. Generally speaking, even when the strategies are coherent, French tour operators do not have the necessary means to think about rivalling the big Anglo-Saxon operators, and particularly to proceed, like them, with major acquisitions. Each corporate model relies a great deal on the charisma of a man or a woman, and until now intra-national mergers have not been possible or successful. French tour operators developed by taking small market shares, not through reasoning in terms of external growth. This evolution model placed them at the mercy of the giants of the Old Continent (that is the world giants), whose massive buyout policy was nonetheless somewhat marred by the economic situation at hand… but for how long?Still very national, French TOs must content themselves with a very limited market. Less than a quarter of the French goes on holiday abroad, versus over 50% for their British, Ge r ma n o r Dutch neighbours. And what’s more, only 20% of French holiday goers who leave the country use a tour operator. In fact, the French use TOs only for visiting countries where they don’t know the language, that have a very different culture, and where they are concerned about fear security problems. In short, when there are too many unknown factors, organised travel is a reassuring option.They also think that the holiday will cost more through a tour operator than if they organise their trip by themselves (under-estimating the tour operator’s power to negotiate). If we add a lack of departures during the off-peak season, the phenomenon of secondary residences that are still abundant, then we get the picture of a market that is not very promising. According to René-Marc Chikli, French holiday behaviour is not the only cause: “We don’t give them the means to spread out their holidays, unlike in Germany where the major holidays are distributed region by region, ensuring operators a four-month peak season.” Finally, others stigmatise the airline policy of public authorities who have been pressured by the national company for nearly thirty years. This policy would have prevented the rapid growth of charters in the country, which are necessary for a true tour-operating market to flourish.A more positive reading consists in considering that part of the population that never leaves the country as a formidable supply of clientele. Yet, they still must be convinced by presenting them with the right product. The challenge seems leagues away from being won, even if a report from Ceto indicates that its members made a total of over 2.6 million customers travel during the first semester of the year 2003/2004 (from November 1, 2003 to April 30, 2004) – for an increase by 5.1% with respect to the previous year on the same period.Following the euphoria of the year 2000 and the great disappointment of 2001, of which the terrorist attacks were not the only cause, the sector nonetheless struggles to find new references. The promise of travel’s explosion, sparked by the shortened working week, was cause for hang fire. It mostly stimulated weekend departures, the development of hobbies,… but no, or very few, trips abroad. It is this observation that inspired Nouvelles Frontières to develop its national supply. The tour-operator is inaugurating the “Go by car!” concept for summer 2004, which offers rentals, hotels and mobile-homes in the most prized regions in France. The operation is proving to be a fine success. “The supply on the national territory has vast potential,” affirms Christian Rochette, communications manager for Nouvelles Frontières “For our compatriots as well as for all Northern Europe, the pleasant area for spending holidays starts south of the Loire”. In short, since the French don’t want to leave, it is better to adapt to their customs than to try to change them …

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