Thursday, February 21, 2013

When Giants Collapse: Orizonia

How is it that a travel conglomerate that in the past couple of years could post a rise in turnover of 15% in its retail division and a 46% rise in turnover in its hotel division can be brought to its knees? Orizonia, one of the giants of the Spanish travel and tourism industry, joins a list of recent victims of corporate failure. Spanair, Grupo Marsans, now Orizonia. And there are others.

The positive blackness of the figures from the Orizonia accounts obscured all the negative red ink: a loss and 620 million euros worth of debt. In November last year, Orizonia needed to muster 60 million euros to prevent its collapse. The company thought there was a rescue deal with the Mallorcan Barceló hotel group, but it fell through because Orizonia's banks didn't support the offer. They have instead accepted one from another travel giant, Globalia. José Hidalgo, Globalia's entrepreneurial founder (a sort of Branson minus beard, hair and the all-round irritation factor), is meant to be Orizonia's white knight, riding to the rescue, while 5,000 employees face redundancy, a fifth of them in the Orizonia Palma headquarters. 

Meant to be but not able to. Globalia has sunk 15 million into Orizonia but it will not inject a centimo more until the green light to the deal is finally flashed by the Spanish competition commission. And how long will this take? At least two months, and because a merger between the two companies would create an overwhelming presence in the Spanish travel industry, it could even yet be refused. You would think that it wouldn't be, but then the competition commission looks like having other deals to consider as well.

Globalia had said that it wanted to buy all of Orizonia, but this now seems unlikely. Barceló has come back into the frame and made offers for the Orbest airline (which suspended operations on 20 February) and the Vibo travel agencies. Who's buying what, and already one can hear the lawyers sharpening their pens and preparing for court challenges, is all part of the end-game fallout from a spectacular business collapse. Another one, and another one in the Spanish travel industry.

What exactly is Orizonia? It is a group of tour operators, e.g. Iberojet; travel agencies (Vibo used to be Viajes Iberia); airline (Orbest, which operates nationally and internationally); reception services (Smilo); and hotels (Luabay). It isn't, therefore, an unusual conglomeration of travel and tourism products, but it is this combination of business lines that may well have been its downfall.

Orizonia is also a young company, only some six or so years old. It was formed out of Iberostar when, in 2006, Iberostar's owner, Miguel Fluxá, took what many commentators thought was an unusual step. He sold off much of Iberostar's non-hotel business. Orbest used to Iberworld, just as Vibo was Viajes Iberia, both of them formerly part of Iberostar (indeed Viajes Iberia was really what led to the creation of Iberostar).

Fluxá's unusual step can now be seen as a brilliant act of foresight. In concentrating on the hotels, and so continuing to develop one of Mallorca's outstanding businesses and brands, he shed what were to become more vulnerable business divisions. For example, though Vibo turned in that recent 15% rise in turnover, it, as with other Spanish travel agencies, has experienced a rough ride over the past twelve months, the domestic market in the slump that it is.

The Orizonia demise can, therefore, be characterised as a classic business dilemma between expansion through diverse operations and focus on limited lines of business. Marsans was also a diverse operation, though its financial management and controls, we now understand, were far from stringent, and this lack of governance partly explains why one of its founders is currently languishing in prison.

But there is, some commentators have observed, a peculiarly Spanish style of business that tends to neglect fundamentals such as profitability in favour of a desire for turnover and prestige. Orizonia managed to make a loss on a total turnover of 2,350 million euros. Its growth model, and Luabay exemplified this, was too ambitious. In 2011, it acquired its first hotel in Mallorca and agreed to acquire three more, all the time adding vulnerability to the total business group.

There may be some truth to the claim that Spanish businesses pay too little attention to control, but not all. Barceló, though diversified, is considered to be a well-run company. It is different to the likes of Orizonia and indeed Globalia. It is long-established. More conservative perhaps. But if this means paying attention to the basics, then conservatism is the right course. Orizonia's has proved to be the wrong one. 

Any comments to please.

1 comment:

Margaret Lawforfd said...

We only paid our full price one week before this collapse, will we get our money back? This is such a disappointment as it was a trip for our joint 70th birthdays.