Auto Club cites competitive pressures. Group says it paid

Los Angeles Times

     The Automobile Club of Southern California and its insurance affiliate paid $100 million to acquire the nation’s leading Hawaii tour packager, and the Auto Club said it might buy other providers of club services in the future.

     As with its purchase of Pleasant Holidays two years ago, the Auto Club does not plan to reveal future investments to its 5 million members or to the public, John F. Boyle, its chief financial officer, said this week.

     “We work in a number of fields that are quite competitive, and we always want to make sure we’re not tipping our hand to competitors,” Boyle said.

     The club’s refusal to disclose its purchase of Pleasant Holidays, revealed last week in news reports, prompted the state attorney general’s office to open an inquiry into whether the club violated state business laws by keeping the deal quiet while steering more than half of its Hawaii-bound members to the tour company.

     The Auto Club bought Pleasant Holidays, which its owner wanted to sell, because the club feared losing the tour company’s services to a competitor, Boyle said.

     The club does not own any stakes in other travel service providers, he said, but won’t hesitate to safeguard access to its wide-ranging club benefits. “If we feel threatened,” Boyle said, “we may enter into strategic investments with a variety of providers to ensure we can continue to provide the services.”

     The club’s secrecy has triggered criticism from consumer advocates as well.

     “This is the kind of information that its members would certainly want to have before doing business with an affiliate,” said Harvey Rosenfield, president of the Foundation for Taxpayer and Consumer Rights in Santa Monica. “The one thing that the Auto Club has going for it is its trust and integrity, and it sounds like it may have been breached in this situation.”

     Pleasant Holidays has been the club’s only “preferred provider” to Hawaii since January. The arrangement, which gives the Auto Club extra commissions for booking customers with the tour operator, raises the issue of whether the club is looking out for its members or the tour company it owns.

     Tim Erwin, an Auto Club vice president, said that the club’s mission is to serve its members. The club’s control over Pleasant Holidays, he said, ensures “that the members who trust us for travel have the ability to purchase high- quality products at a very competitive price.”

     At AAA headquarters in Heathrow, Fla., the umbrella group for 82 auto clubs nationwide said its travel agents offer objective advice.

     “That means agents work as hard as possible to find the right travel options for a member, whether it’s with a preferred provider or not,” spokesman Tom Calcagni said in a written statement.

     AAA said it also supports the acquisition of service providers by its member organizations. “Owning a high-quality tour company,” Calcagni said, “gives AAA members access to the excellent products they desire.”

     The national organization lists Pleasant Holidays and Classic Custom Vacations in San Jose as its only preferred providers for tours to Hawaii.

     Pleasant Holidays, based in Westlake Village, has been the leading tour packager for Hawaii vacations. Last year, its Pleasant Hawaiian subsidiary sent about 450,000 travelers to Hawaii, helping the company take in about $450 million in revenue. The company also serves other destinations.

     When owner Edward Hogan quietly put word out several years ago that he wanted to sell, the Automobile Club of Southern California jumped at the chance. It created a joint venture with affiliate Interinsurance Exchange to buy Pleasant Holidays in January 1999, with each owning nearly half.

     The partnership borrowed $75 million from a bank and $25 million from Hogan, according to club financial reports and Boyle. The Hogan Family Foundation and AAA Northern New England own less than a 5% stake in the venture, Boyle said. Last July, the local auto club bought out its affiliate’s stake for $13.3 million and took over payments for the entire loan.

     The Auto Club is a nonprofit mutual organization for the benefit of members and operates as a private company, which means it does not publicly report financial matters.