Two of Canada's major vacation travel businesses are being combined as Sunwing Vacations will join forces with tour operator Signature Vacations and its retail division SellOffVacations.
On Tuesday, European firm TUI Travel PLC, which controls Signature and its retail division SellOffVacations, announced plans to hand over the business units and $101 million to Sunwing.
In return, Sunwing, owned by the Hunter family of Toronto, will give TUI a 25 per cent voting interest and 49 per cent ownership in the expanded Sunwing Travel Group.
Stephen Hunter will become president and chief executive officer of Sunwing.
TUI Travel operates in 180 countries and last year had revenue of more than $24 billion. But its First Choice Canada division, through which it controls Signature, has lost money of late, including $20 million in the first half of 2009.
Over the last five years, and not including the new partnership, the Sunwing Travel Group says it has increased revenue dramatically to $660 million from $30 million while maintaining underlying profitability.
"The new company will generate approximately $900 million in combined revenue, which we estimate places it in second place behind Transat AT in the Canadian packaged tour market," said Cameron Doerksen, an analyst who covers the sector for Versant Partners Inc.
Despite the topline growth, concerns over the viability of Sunwing's finances have arisen as the company has been one of the most aggressive competitors in adding capacity.
"This merger should put to rest any further skepticism about Sunwing’s financial wherewithal," Doerksen said.
The Canadian tour operator market has been plagued in recent years by too much capacity and too many players. So the move is viewed as a positive for the sector as a whole by eliminating one major competitor, even as it strengthens another.
Citing competitive pressures, Conquest Vacations closed up shop in April.
For the new Sunwing, Doerksen expects the merged company will rationalize some capacity, and achieve operational synergies and economies of scale.