Club Med moves upmarket strategy into China

10:21, December 14, 2009      

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PARIS - France's Club Med aims to drive forward its shift upmarket next year with plans to enter China, after its new strategy helped fiscal 2009 profit at its holiday villages inch higher despite the economic downturn.

Restructuring costs and impairment charges pushed the group to a full-year net loss of 53 million euros ($78 million), against a 2 million euro year-ago profit, missing a mean estimate of a 40 million euro loss in a Thomson Reuters I/B/E/S poll of 12 analysts.

But top executives at the company said on Friday the vast bulk of the pain was behind it, revealing winter bookings that were up more than a fifth in the last eight weeks and a planned return to positive free cash flow this year.

Shares in Club Med rose as much as 6.6 percent and closed up 2.4 percent. The stock was already up by a third this year.

"The Club showed in 2009 it was resilient to the effects of the global crisis," Chief Executive Henri Giscard d'Estaing told Reuters. "That means we have a lever effect once there is some wind in the sails. Our goal will be to go and find growth wherever it is."

TUI Travel Plc, Europe's biggest tour operator, said this month it expected trading conditions to improve in 2010 as pressure on consumer spending ease, while Thomas Cook said 2010 could be even more challenging.

Club Med has recast itself as an upmarket holiday group as it tries to recapture the appeal that once made it a byword for fun. Over the years, it had added luxury villages in the Pacific and Alpine ski resorts, catering to a wider range of people.

Club Med has been held back by loss-making villages outside Europe, analysts have said. This included the Americas, but Giscard d'Estaing said that region would remain its top market.

The group has sold six villages there, invested in those compatible with "affluent families" and avoided getting drawn into a price war, finance head Michel Wolfovski told Reuters.

Club Med also has high hopes for China, which Giscard d'Estaing said could become its second-biggest zone as the country's tourist and vacation market is set to soar to 360 billion euros by 2020 from 110 billion in 2008.


The company plans to open a ski village in Yabuli, in northeast China, next year at a cost of 3 million euros, followed by a further four holiday villages by 2015 when it hopes to have 200,000 Chinese customers.

"The company is not judged on its results, it's judged on its strategy and people like the move into China," Agilis Gestion fund manager Arnaud Scarpaci said.

The group's strategy came under fire earlier this year from former French minister and Olympique Marseille soccer club president Bernard Tapie, who took a stake of around 1 percent and said he would outline his next move once the fiscal 2009 results were published.

Reached by phone, Tapie said: "I am not declaring anything."

The Club Med executives declined to comment on Tapie or on whether he still held his investment, saying only that legal proceedings launched against him in June over comments in the media were ongoing.

Giscard d'Estaing still planned to meet fashion designer Christian Audigier in January to discuss a possible partnership that could include a $10 million investment in Club Med.

Audigier has said his plan was to create a partnership to help boost its image outside France, aiming particularly at Asian and American holidaymakers, using his celebrity appeal.

"What we've agreed is to test it in the Americas," Giscard d'Estaing said.

Source: China Daily/Agencies
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