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Thomas Cook begins down the long road of retrenchment

Wednesday, December 14, 2011
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Here we go.  Embattled tour operator, hotel owner and travel agent Thomas Cook has signalled the start of a prolonged period of retrenchment in a bid to ensure its short-term survival and long-term future.  A terrific research case study for students to follow in the months ahead, but an awful lot of pain for stakeholders in the business, not the least thousands of employees who face an uncertain future.

The banks have given Thomas Cook a temporary reprieve.  But at what cost? 2011 has been a disastrous year for the business.  A £360million loss and very nearly bankrupt. Add in costs of a large failed IT project (£85m) and a decision to close at least 200 of its 1,300 travel agent outlets - and you can see just how significant is the challenge facing Thomas Cook management.

Retrenchment is the word.  Thomas Cook is having to significantly scale back its operations in order to cut costs, reduce losses and conserve cash. Winter airline capacity is being cut, with the number of aircraft reduced from 41 to 35.  Almost 500 hotels are being axed from the Thomas Cook brochures to enable the business to focus on the core, profitable destinations.  That’s bad news for the many seasonal travel reps employed in-resort by Thomas Cook.

Management are trying to implement a turnaround plan at perhaps the worst moment for decades for tour operating businesses.  Consumer confidence is shattered; key travel destinations such as Egypt and Greece are beset with economic and political difficulties.  The share price has fallen by 90% in the last year.  The odds looked stacked against Thomas Cook, so can it survive?

Sam Weihagen, the CEO, is now leading a full-scale strategic review.  He’ll examine the competitive position of every part of the Thomas Cook group and evaluate whether to retain, sell or close the various travel brands that form the group. I would expect to see several business disposals in the coming months.  We saw the first example of that recently with with the disposal (for £70m) of its interest in a business that owned a group of Spanish hotels. 

At some stage, probably as the the initial benefits of the turnaround strategy start to emerge, we might expect Thomas Cook to return to its shareholders for new investment.  Given what has happened to the business, they make take some convincing!

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