Ian Taylor, executive editor
The end to the immediate crisis at Thomas Cook, late on Friday, was welcome. But the real work starts now.
Thomas Cook needs to work through a fairly extensive sale of assets – rumoured completion of an £80-million Spanish hotel property deal would be a start – so it can pay off the additional loan facilities secured last week before interest-rate rises kick in.
The group also needs to turn in a convincing set of annual results in a fortnight or so, and appoint a chief executive with a track record to please the City before embarking on a strategic view that analysts insist must encompass major changes.
The company needs to be able to steady investors’ nerves and convince there is a way back from the abyss it teetered over last week.
It must at all costs avoid any more nasty surprises, particularly as the feeling persists that it may not. Any kind of recovery in the share price would help, but nothing is certain in this regard and positive reaction may be muted until long after the results come out.
Merely staying out of the press may have to be enough. If the company can do that, UK bookings should steady. The real issue will be what happens in January: how much of the mud from last week has stuck? There is no way of knowing until the time, which will make for an anxious few weeks.
Thomas Cook UK will need to proceed quickly with its turnaround plan, with an announcement on shop closures to be expected with the results in mid-December. The turnaround will need to be substantial to satisfy the City, so the 200 shop-closure figure bandied about in the press will not be far off the mark.
Cuts at Thomas Cook Airlines are already going through, and disposals and reductions in the UK tour operating businesses appear inevitable.In all regards, the Thomas Cook group will shrink.
Product may not fly off the shelves in the short-term. In the medium term, the company will have less to sell as the UK business refocuses on retailing. It remains hard to understand the thinking behind the merger with the Co-ops, but the upside is that at least this gives Thomas Cook several hundred shops that do not bear its name. The downside is The Co-operative Travel shops were barely making money when the deal was done.
Let’s be clear, Thomas Cook will not be what it was. It must make a convincing case for the strategy it unveils next month.
One major problem for the group is something it can do nothing about – the economic and market environment in which this turnaround must take place.
The UK outlook is poor, to say the least. On Tuesday we will hear the Treasury’s downgraded forecasts, with reports at the weekend suggesting an economic growth prediction for next year of just 1%. Even this might turn out to be optimistic.
UK government austerity will continue – exacerbating people’s fears for their jobs – and discretionary spending can only be hit afresh.
Eurozone leaders will meet in Brussels the same day the Chancellor makes his autumn statement, against a background of reports that Spain is poised to seek aid from the International Monetary Fund, Belgium has suffered a credit downgrade and fears of default by Italy and Spain have heightened.
Given the pressures UK government finances are under, it is highly unlikely Osborne will cut Air Passenger Duty (APD). The travel sector will continue to demand the Treasury scrap or reduce the tax, but in practice most industry leaders are resigned to current rates – or those projected for 2012 – remaining.
Privately, the most optimistic view among those lobbying the Treasury is that Osborne might raise the tax next April by less than expected – postponing part of the planned double-inflation increase. A more realistic ‘best-case’ scenario is that he might make next April’s near 10% rise the last for the time being and institute a fundamental review of APD and its economic impact.
The sector may barely have time to digest the detail of Osborne’s statement on Tuesday, however, because all those bar the public affairs specialists could be frantically working to rebook clients due to fly in or out of Heathrow or Gatwick the following day.
Serious queues and delays at inbound border control appear inevitable on Wednesday as a result of the planned one-day public sector strike. Queues big enough to close terminals may be unavoidable.
As of Friday, the airports appeared to believe 50% of border control points would be staffed. My guess is that is over-optimistic.
I could be wrong, but the strike is as popular among union members as the government’s pension policy is unpopular. When head teachers vote for their first-ever strike it should tell you something major is afoot.
The situation at airports will be exacerbated by antagonism toward home secretary Theresa May following the recent fiasco over relaxation of passport controls. Arriving at Heathrow and Gatwick could be horrendous for anyone without an EU passport. I wouldn’t bet against passengers being held on aircraft and flights held at departure airports.
We are in for a hell of a week.