Thomas Cook: seeing signs of recovery – analysis in Travel Trade Gazette

With our exceptional track record in the Online Travel sector, Travel Trade Gazette asked us to comment for a recent piece on Thomas Cook’s progress since its shock announcement of £100m emergency funding a year ago:

It is exactly a year ago that Thomas Cook was forced to put its full- year results on hold as a “result of deterioration of trading in some areas of the business”.

The announcement sent shock waves throughout the travel sector, and the City, as Cook embarked on emergency talks with its banks in a bid to secure a £100 million loan.

Earlier in the year the company had issued three profit warnings, one of which was followed by the departure of group chief executive Manny Fontenla-Novoa with a golden handshake in August.

The November 22 announcement prompted a share price plummet of 75% from 41.2p to 10.2p, wiping £265 million off its value and there was a fear the century-old brand would be irrevocably damaged by the fallout.

In the past year, Cook has revealed plans to close more than a hundred shops, as well as leasing back aircraft and selling some assets, but analysts warn that Cook still has a “long way to go before it is out of the woods”.

The brand has, however, weathered the storm so far and the City appears to largely agree that the operator is on the road to recovery. “There’s still a lot more that needs to be done,” admits analyst Wyn Ellis from Numis Securities. “Cook is on the right road, but it’s going to be a long time before it is in the clear. But it has done a lot of emergency things, and the brand has held up.”

These emergency steps include seeking a £1.4 billion refinancing deal; the planned closure of 128 shops, with 72 more potentially on the cards; and the sale of various property assets.

Big decisions

The sale of assets is crucial in reducing the operator’s debt, but analysts warn it will need to go further in 2013. “Cook has succeeded in stabilising the debt, that’s really all,” says Douglas McNeill, from Charles Stanley Securities. “Debt at the year-end just gone will have been pretty similar to what it was a year ago. I think there will be plenty more restructuring to come; I would not be at all surprised to see further closures of retail and back office premises.”

Of course, it is not only the company’s assets that have been removed from the business. Cook’s staff have suffered the brunt of the crisis with more than 1,000 losing their jobs from the store closures alone.

Since the arrival of chief executive Harriet Green in July, there have also been notable departures from senior management at head office. Just last week, the departure of Cook product and aviation director for scheduled business David Robinson was announced, two weeks after it was revealed mainstream chief executive Ian Ailles and independent business executive Phil Aird-Mash would be leaving the company.

Instead, now heading up the UK division is Peter Fankhauser, who as chief executive, UK and Continental Europe, is responsible for the UK and Ireland businesses. His key priorities are transforming the business performance, simplifying the UK’s operating structure and accelerating its ongoing turnaround plan.

“The clear-out of management has been quite dramatic,” says Ellis.

In its last trading update at the end of September, Thomas Cook said its UK turnaround plan was “delivering against its objectives” and that the group’s quarterly financial trend was showing signs of improvement.

At that time it revealed it was set to finish the summer with mainstream package sales ahead of expectations with average prices 8% up on last year. It added that total mainstream sales were 9% down on last summer with capacity down 11%.

Thomas Cook’s UK specialist and independent sector reported bookings up 10%, while another relatively good performer was its German airline sector, which saw average selling prices up 8% and cumulative bookings up 7%, in line with a capacity increase.

From the City’s perspective, Cook’s year of change seems to be heading in the right direction. The share price has been steadily rising since the summer, and was 20p at the close on Monday.

However, more structural changes are inevitable and analysts are largely in agreement that a distribution overhaul will be at the heart of the strategy.

“The biggest challenge is the nature of its distribution, as people move online,” says James Lever, Partner at Livingstone.

Ellis agrees: “Cook is behind others with their internet capability, and its brand presence is less prominent than others.”

There is also a sense that Cook will need to improve relationships with hoteliers, and analysts warned of more asset disposals likely to be coming down the road.

For the meantime however, all eyes will be on the full-year results, which are due to be released on November 28.

McNeill says he is expecting little improvement. “I expect it to report that profits are very substantially down on last year. That’ll be no surprise. But that’s last year. The question is, what’s Cook going to do going forward?”

Having reached this milestone one year on, there still remains much to do at the UK’s second largest tour operator.

“Green has taken radical action regarding management and if we can see that going on on the outside, there is sure to be an awful lot going on inside,” Ellis concludes.

“The brand is not going to fix itself in 12 months time,” Lever adds. “It will be a long process, but we’ll see Cook taking the right steps in that direction. Rome wasn’t built in a day.”


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