Sandals Versus Apple Leisure Group: What’s the Endgame?

The recent statement by Sandals and Beaches Resorts that the company is curtailing its wholesale relationship with the Mark Travel Corporation is puzzling in a way. It poses many questions. It is a good example of how the travel industry continues to evolve in ways no one has seen before.

Here’s a quick recap: Last week, Sandals released a statement that it would no longer let the Mark Travel Corporation sell Sandals resorts. That includes Mark Travel’s flagship vacation packaging brand, Funjet Vacations, as well as its private label airline brands, United Vacations and Southwest Vacations.

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Sandals is cutting off its distribution channels in all of those brands. That is significant shelf  space in the wholesale vacation market. Why would Sandals want to reduce the channels through which its products are available to travel agents and the traveling public? That is the question of the day in the wholesale travel segment, and Sandals isn’t giving any reasons for its move.

So, we are free to speculate. Some background is in order here: The Mark Travel Corporation, founded in 1974 and built by the visionary Bill La Macchia, is a travel industry behemoth, one of the great phenomena of the late 20^th century travel industry.

Before its recent acquisition by the Apple Leisure Group (ALG), the Mark Travel Corporation was, itself, one of the largest-volume and most dynamic vacation packagers in the industry. It was one of the toughest competitors of Apple Vacations, the flagship vacation packaging brand of the Apple Leisure Group (ALG).

But as of the closing of the deal on May 1, Mark Travel has been subsumed into the Apple Leisure Group, owner of Apple Vacations and historically one of Mark Travel’s fiercest competitors. After the deal went through, Sandals promptly cut off Mark Travel as a wholesale channel.

This has a feeling of déjà vu. It is a replay of a scenario from a few years back. In 2013, Apple Leisure Group acquired Travel Impressions, which had previously been one of Apple Vacations’ toughest competitors. After ALG’s acquisition of Travel Impressions was completed, Sandals cut off Travel Impressions as a wholesale distributor of its products.

Allies and competitors
Though Sandals is being coy about its reasons for the severance of its relationship with Mark Travel, there is nothing particularly mysterious about its motivations.

Alex Zozaya, the CEO of Apple Leisure Group, has stated the obvious: the reason that Sandals is cutting off Mark Travel is because Apple Leisure Group also owns AMResorts, which Sandals sees as a competitor in the Caribbean/Mexico all-inclusive resort market.

And it is. There is no getting around it. AMR is a big competitor of Sandals.

But does it follow that Sandals should close off the distribution channels of Apple Vacations, Travel Impressions and now the Mark Travel Corporation? That’s a good question. And it’s obviously up to Apple to decide. Zozoya is leaving the door open. Apple wants to sell Sandals.

It is easy to understand why Sandals would not want to do business with a company that, although it is an ally as a wholesale distributor, is also a competitor in the resort market.

It was one thing when Apple Leisure Group’s only vacation package brand was Apple Vacations. Now that Apple has swallowed up its major competition, it changes the proposition. What is Sandals to do now?

Consolidating the U.S. vacation package market
Apple Leisure Group, first with the financial backing of Bain Capital in 2013, and now under the ownership of KSL Capital Partners and KKR, has managed to accomplish what would have seemed impossible earlier. It has largely consolidated the U.S. vacation package market under its umbrella.

There have been notable attempts to consolidate the wholesale travel segment before, including some colossal failures such as Far & Wide Travel and the Global Vacation Group. It is still a long shot that anyone could consolidate much of the escorted tours market. It is too large, diverse and fragmented. But in the wholesale vacation packaging tier, Apple has practically done it. What used to be its toughest competition is now part of its own team.

Has ALG neutralized competition in the vacation package resort market of Mexico and the Caribbean? Time will tell. Meanwhile, it may not be the ideal of a competitive free marketplace, but this is the way it is. Apple Leisure Group controls a large share of the wholesale vacation package market.

So given that one of Sandals’ biggest competitors in the resort market has taken over the wholesale vacation packaging industry, what is Sandals to do?

I wish I could tell you. But it seems like Sandals, like most of us in these wildly changing times, has gotten caught up in assumptions that are no longer relevant to the world it now finds itself in.

It seems to be sizing up as a Battle of the Titans, but who can win? When two giants go toe-to-toe, and they are not even in the same competitive class, what outcome can we expect?

What are the game theory mathematics of this? Sandals cuts off Apple, Travel Impressions and now Mark Travel from selling its resorts. How much business do they lose from eliminating those distribution channels? Obviously the company thinks it can gain that business back through other channels. How much distribution muscle have they denied themselves? What is the gain for Sandals?

How much chance is there that Sandals will achieve some kind of victory in the long run? Does this strategy assume that Sandals can hurt ALG by denying it access to its products? Does Sandals think it can hold ALG under siege until the company comes crashing down? What is the endgame? What is the ultimate objective?

Well, Sandals isn’t talking. So, we’ll just have to see how it plays out. It’s unlikely that even Sandals knows where its strategy is heading.