Comment: Thomas Cook should avoid running the race to the bottom

| June 28, 2019, 08:25

You can never be everything to everybody, says Miles Morgan Travel managing director Miles Morgan

We are approaching a huge summer for some heavyweights of our industry. Serial good performers like Tui, easyJet and Ryanair are finding conditions challenging, while others, like Thomas Cook, are literally fighting for their lives against the strong Brexit headwinds.

I’m sure many in the HQs of these industry giants are secretly praying for rain every night because they fear that Brexit, along with a summer as warm as last year’s, could cause a staycation summer – something that no one in the business of selling overseas package holidays can afford to see. Until this week, it has generally been wet and cold.

Podcast: What next for Thomas Cook?

So, what are the implications of the turbulence at Thomas Cook for predominantly high street agents such as myself? The big driver for a surviving Cook will be its size and shape. With an airline? As a tour operator only? What about its circa 550 shops?

Cook strategy

The first thing Thomas Cook needs is a clear strategy. I wrote months ago in this column about Cook returning to its ‘agent’ roots with the sale of the airline, as I felt it was too far behind Tui with its own-label product. While it continues to grow its portfolio of own-label hotels, for me the pace of that growth is too slow. And with its current financial position, would hoteliers be keen to partner?

Chinese shareholder Fosun, which currently owns around 18% of Cook, is currently preparing a bid to buy its tour operating division. But would they want its shops? The retail estate has been underinvested in for years and is suffering from long legacy leases that the business can’t get out of. I hate CVAs (company voluntary arrangements), but Cook sounds like a prime candidate for a total overhaul of leases and rents to get back on an even keel.

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Thomas Cook makes senior hotel team appointments

Comment: Can Thomas Cook survive?

There’s talk of easyJet and Jet2holidays expressing interest, and I think both of those companies could enjoy the slots at key airports. But what of the shops? EasyJet is just starting out on its journey to sell holidays, and would get immediate traction from this, albeit at a fixed cost compared to selling via agents where you pay the agent only when a sale is made.

If Jet2 moved for the shops, it would worry a host of agents currently building their businesses on Jet2holidays as, in that eventuality, such agents would no longer be required. What would your profits look like without Jet2holidays? Worrying…

My prediction

But this is all speculation, of course. What do I think is the most likely outcome?

For me, the airline will be sold, freeing up much-needed cash, then Fosun will buy the rest. A clever restructure allows a CVA of the retail estate, allowing it to return to profitability. The brand repositions as ‘Thomas Cook, the Home of Holidays’, selling third-party product again along with dynamically packaged in-house product.

I would suggest it should return to being a quality operator where being the cheapest is not required. In my view, the race to the bottom is never a winning ticket. Leave On the Beach and Loveholidays to fight for the low end of the market. You can never be everything to everybody.