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Thomas Cook: From Loughborough railways to potential unravelling

Despite expanding from humble beginnings in 1841, the travel operator is now beset on all sides by encroaching rivals while also trying to keep up with changes in consumer behaviour

Thomas Cook photo
Thomas Cook, the founder of the UK's first travel agent

Thomas Cook Group PLC (LON:TCG) is facing the possibility of being split up after reports emerged on Tuesday that it was considering a sale of the business.

While the company has come a long way from running train rides between Leicester and Loughborough in 1841, it now finds itself under pressure from changes in consumer behaviour, a Brexit-induced slump in sterling and encroachment from budget rivals.

READ: Thomas Cook shares shine as firm considers possible sale of business after tough year

The latter point was borne out in a Morgan Stanley survey in January which indicated that Thomas Cook, alongside second-most popular tour operator TUI AG (LON:TUI) were losing market share to new entrants such as On The Beach PLC (LON:OTB) and Dart Group PLC (LON:DTG) owned Jet2.

A sale would also mark an end to what has been a rather tumultuous period for the travel group, which in 2018 issued two profit warnings amid a double whammy of extreme weather with the ‘Beast from the East’ cold snap earlier in the year followed by the UK’s summer heatwave. It has also seen its share price tumble over 85% in the last 12 months.

READ: Thomas Cook and TUI losing market share to new entrants, Morgan Stanley survey suggests

Aside from these ‘acts of God’, Thomas Cook’s predicament is also viewed by some as a case of a travel firm trying to play catch-up with shifts in the sector when it has already missed the bus (or flight if you prefer).

An analyst at a City brokerage firm, who asked not to be named, told Proactive that while some of Thomas Cook’s joint ventures (JV) in recent years had made moves in the right direction, notably a JV with online travel firm Expedia Group Inc (NASDAQ:EXPE) for an online booking platform in 2018, the transition in line with sector changes “hasn’t been quick enough”.

They added that Thomas Cook hadn’t adapted to new content ownership strategies such as managing a chain of own-brand hotels or low-cost distribution models such as online booking, both of which would have helped profitability as the former would increase margins while the latter would cut costs.

Meanwhile, the company’s airline business has been facing downward pressure on fares as budget carriers like easyJet PLC (LON:EZJ) and Ryanair (LON:RYA) have adopted aggressive pricing strategies to edge out competitors.

In short, the company is now caught in a seesaw of lower takings from air fares as a result of competitive pricing and higher costs from hotels due to the plunge in sterling’s value, squeezing what was already a low-margin business.

The combination of snow and a scorching summer may, effectively, have exacerbated these pressures to create a perfect storm.

Victorian legacy

The current situation is a far cry from the company’s long pedigree, in which it boasts the accolade of being the oldest tour operator in Britain.

The firm’s legacy includes the pioneering of circular notes, a precursor to the traveller’s cheque, by its founder as well as being the first UK travel agent to advertise pleasure trips by air in 1919, although given that it is now potentially on the cusp of selling its airline, this centenary may be bittersweet.

The company was also nationalised in 1948, returning to private ownership in 1972 and surviving a recession that caused the collapse of several of its peers including Clarkson and Horizon.

Fast-forward to the present and the Thomas Cook empire now includes around 22,000 staff in 16 countries, coalescing around its airline, tour operations, and hotels.

With so many branches, and now the possibility of segments being sold off, it could be argued that the company should’ve stuck to its travel agent roots and is now suffering the consequences of overexpansion.

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