By Steve Endacott, On Holiday Group chief executive, and former MyTravel commercial director
This week’s Thomas Cook interim results looked very impressive.
The company identified £390m of savings, forecast a return to profitability for the full year and most importantly laid out a robust solution to its debt mountain.
So chief executive Harriet Green clearly has quickly got to grips with the financial issues and has laid the foundation for a healthier future.
However, there are still a large number of fundamental issues that need addressing if Thomas Cook is really going to be able to take on its larger rival Tui Travel head to head.
To understand these issues, its probably worth reviewing the consolidation that created these two travel giants.
Thomas Cook’s tour operation was originally formed by the amalgamation of Sunworld, Flying Colours and Inspiration in the late 1990’s.
Sunworld and Flying Colours were relatively new start ups, which were acquired and merged together over a six month period and immediately added to by the acquisition of Inspirations/Caledonian Airways.
You can imagine the pain of trying to put all three together in a very short period of time.
Further growth by acquisition occurred seven years later with the purchase of the highly distressed MyTravel Group of companies, which was rapidly relocated to Peterborough, with a 95% redundancy level.
To complete the melting pot, 400 Co-op shops were acquired just before Thomas Cook started to implode.
Thomas Cook’s tour operating, retail and airline infrastructures have all been created by acquisition and offer relatively weak foundations, compared to its main rival’s Tui.
Most commentators viewed the merger of the strongest brand in terms of quality – Thomson – with the industry’s best management team lead by Peter Long at First Choice, as the dream ticket.
First Choice started the process of creating differentiated hotel product with the launch of First Choice Holiday Villages and Sensatori Hotels over 10 years ago.
They planned and ordered the Boeing 787 Dreamliner aircraft, that are only now coming into service with Tui, eight year ago.
These decisions were key in creating the differentiated product that is proving so profitable for Tui and driving their current strong financial performance.
Harriet Green has not yet put a foot wrong; however, she does not have a “magic wand” that can short-cut ten years of planning and financing required in order to create large volumes of differentiated product.
I must admit to concerns about the process of driving overhead savings by abandoning the old brand silo structure and moving to centralised buying, commercial and finance functions.
This is likely to rip the heart out of most of Thomas Cook’s secondary brands like Airtours, Hotels4U and Club 18-30.
Although this may be a sacrifice which has to be made, there are numerous examples in travel where two plus two can quickly amount to only two – lose the brand and lose the volume/profit.
So although I understand the logic of what Thomas Cook is trying to do and cannot fail to be impressed by the share price rise, I think I will continue to invest my money in Tui.
For me it’s still a gamble that the “re-iced” Thomas Cook cake will not start crumbling in the next few years as it has to cover the hard yards required to take it back to substantial profits.
The above article was reproduced with permission from Steve Endacott’s personal blog.