Thomas Cook seeks ticket out of time warp

High-street's biggest travel agent is axing 75 stores – and those polyester suits

Thomas Cook is in turmoil.

The high-street travel agent has seen two-thirds of its share price wiped off since the since the start of the year; there have been three profit warnings, and the chief executive has quit. Cheesy television advertisements featuring Jamie and Louise Redknapp have added to the sense that this is a holiday company trapped in a 30-year time warp.

And this is against the backdrop of an industry that has had to cope with erupting volcanoes, revolutions in popular North African destinations, rising fuel prices, and the downturn in consumer spending.

Simon French, a leisure analyst at Panmure Gordon, sums up the situation neatly: "The stock market hates uncertainty and at Thomas Cook there is certainly uncertainty."

Despite the chaos, Thomas Cook this month became the biggest travel agent on the high street, with 1,240 shops, after the Competition Commission approved its acquisition of Co-operative Travel and Midlands Co-op. What's more, Thomas Cook is embarking on a rescue plan that will see its estate spruced up in an effort to woo back customers as high-street travel agents show early signs of revival.

Some experts had predicted that the way through the crisis would be to close hundreds of shops and reduce the network of shops, as more holidaymakers book online. One source close to the business said: "The business should have no more than 600 shops across the UK. Its store portfolio has grown then shrunk over the years after various acquisitions and then disposal programmes. It should definitely shed more stores this time round."

But, instead, Thomas Cook plans to update the stores and consign to history images of staff in polyester suits, and fading brochures lined up on the wall. It is thought that the company is currently looking for consultants to lead this charge.

Nick Batram, an equity analyst in the leisure team at Peel Hunt, says that maintaining significant property is important for the brand. "It is right to have a high-street retail presence. Travel agents are important, and while online is taking market share, a well-located high-street presence is a valuable asset," he says.

Thomas Cook has confirmed it will close 75 shops, particularly where there are geographical overlaps with its new Co-op stores. But the figure could well exceed this if it can close stores where leases are expiring. The travel agency's disposal programme will also include hotels; it has already sold one in Mexico.

But the rationale of the Co-op deal was to increase the retail presence of its products, not massively reduce it. Simon French argues that the shops are stuck in the 1980s and that updating them is the key to attracting holidaymakers. "The presentation of its shops is not appealing," he says. "And if you look at your local Thomas Cook and compare it with TUI's brands Thomson or First Choice, it really looks tired. They still have handwritten cards in the window."

The latest sales figures seem to justify Thomas Cook's focus on its shops. At the end of June, research firm GfK Ascent found that high-street travel agent sales overall had increased by 2 per cent in value, and package holidays were up 1 per cent.

But any review or plan in the pipeline at Thomas Cook could be under threat when a new chief is found. After the three profit warnings this year, chief executive Manny Fontenla-Novoa departed in the summer and his 61-year-old deputy, Sam Weihagen, stepped in as interim boss.

The headhunters might well find someone with a bright strategy of their own for the business, which could lead to a much larger disposal programme for the high-street shops.

There won't just be one major change at the top, though, as a chairman is also needed – Michael Beckett is due to step down at the annual meeting next February.

The gossip is that leisure industry guru Sir David Michels could snare that role. Sir David would be able to draw on a number of different business plans from his stints as Hilton group chief executive, Marks & Spencer deputy chairman, and easyJet board member.

Nick Batram says that a successful disposal programme and a revamped leadership team are musts if Thomas Cook is to revive its flagging fortunes. "The share price has taken a hit but this has been exacerbated by the current stock-market backdrop," he says. "With a shock profit warning, no CEO, and concerns about trading, the share price reaction is not surprising. The next 12 months and beyond will be tough."

The uncertainty at the top and the paltry value of its stock could also leave Thomas Cook vulnerable to takeover. Rumours are already circulating that the company could be of interest to TUI, despite potential competition issues, and to the acquisitive Switzerland-based Kuoni Group.

Another problem for Thomas Cook could be its recent joint venture with Russia's Intourist. It agreed a £29m cash-and-shares deal, but that was before Thomas Cook investors saw their stock devalued. Some analysts question whether this deal will have to be renegotiated.

The main problem area is the UK, but this makes up only 25 per cent of its business and is cushioned by the more successful and profitable German and Scandinavian markets.

Analysts believe that the travel agent must improve its range of products. Mr Batram explains: "TUI Travel has been able to address the demand for shorter duration holidays through greater scale and flexibility, but Thomas Cook appears to have been less successful. Cutting back further on its aircraft fleet without changes elsewhere could further restrict flexibility."

Despite the problems that the company faces, Thomas Cook is still forecast to make more than £300m operating profit this year. As one analyst argues: "There will always be a place for package holidays. But Thomas Cook needs to be flexible and rebuild credibility with investors."

If the company does that, holidaymakers won't just book it. They really will Thomas Cook it.

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksA special investigation by Andy McSmith
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Ashdown Group: Business Analyst - Financial Services - City, London

£50000 - £55000 per annum: Ashdown Group: Business Analyst - Financial Service...

SThree: Trainee Recruitment Consultant

£18000 - £23000 per annum + OTE £45K: SThree: At SThree, we like to be differe...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + competitive: SThree: Did you know? SThree is the o...

Recruitment Genius: Administrator - IFA Based

£22000 - £24000 per annum: Recruitment Genius: This is an opportunity to join ...

Day In a Page

Arsenal vs Chelsea: Praise to Arsene Wenger for having the courage of his convictions

Michael Calvin's Last Word

Praise to Wenger for having the courage of his convictions
Major medical journal Lancet under attack for 'extremist hate propaganda' over its coverage of the Israeli-Palestinian conflict

Lancet accused of 'anti-Israel hate propaganda' over coverage of Gaza conflict

Threat to free speech as publishers of renowned medical journal are accused of inciting hatred and violence
General Election 2015: Tories and Lib Dems throw their star names west to grab votes

All noisy on the Lib Dems' western front

The party has deployed its big guns in Cornwall to save its seats there. Simon Usborne heads to the heart of the battle
How Etsy became a crafty little earner: The online market has been floated for £1.2bn, but can craft and capitalism coexist?

How Etsy became a crafty little earner

The online market has been floated for £1.2bn, but can craft and capitalism coexist?
Guy Ritchie is the latest filmmaker to tackle King Arthur - one of our most versatile heroes

King Arthur is inspiring Guy Ritchie

Raluca Radulescu explains why his many permutations - from folk hero to chick-lit hunk - never cease to fascinate
Apple Watch: Will it live up to expectations for the man or woman on the street?

Apple Watch: Will it live up to expectations?

The Apple Watch has apparently sold millions even before its launch tomorrow
Don't fear the artichoke: it's a good cook's staple, with more choice than you'd think

Don't fear the artichoke

Artichokes are scary - they've got spikes and hairy bits, and British cooks tend to give them a wide berth. But they're an essential and delicious part of Italian cuisine
11 best men's socks

11 best men's socks

Make a statement with your accessories, starting from the bottom up
Paul Scholes column: Eden Hazard would be my Player of the Year – but I wonder if he has that appetite for goals of Messi or Ronaldo

Paul Scholes column

Hazard would be my Player of the Year – but I wonder if he has that appetite for goals of Messi or Ronaldo
Frank Warren: Tyson Fury will be closely watching Wladimir Klitschko... when he wins it'll be time to do a deal

Frank Warren's Ringside

Tyson Fury will be closely watching Wladimir Klitschko... when he wins it'll be time to do a deal
London Marathon 2015: Kenya's brothers in arms Wilson Kipsang and Dennis Kimetto ready to take on world

Kenya's brothers in arms take on world

Last year Wilson Kipsang had his marathon record taken off him by training partner and friend Dennis Kimetto. They talk about facing off in the London Marathon
Natalie Bennett interview: I've lost track of the last time I saw my Dad but it's not because I refuse to fly

Natalie Bennett interview: I've lost track of the last time I saw my Dad

Green leader prefers to stay clear of her 'painful' family memories but is more open about 'utterly unreasonable' personal attacks
Syria conflict: Khorasan return with a fresh influx of fighters awaiting the order to start 'shooting the birds'

Khorasan is back in Syria

America said these al-Qaeda militants were bombed out of the country last year - but Kim Sengupta hears a different story
General Election 2015: Is William Cash the man to woo Warwickshire North for Ukip?

On the campaign trail with Ukip

Is William Cash the man to woo Warwickshire North?
Four rival Robin Hood movies get Hollywood go-head - and Friar Tuck will become a superhero

Expect a rush on men's tights

Studios line up four Robin Hoods productions