Job fears as Thomas Cook and Co-op merge travel agencies

Thomas Cook and the Co-operative Group have agreed to merge their high street travel agent and foreign exchange businesses in a deal that is set to lead to "hundreds" of job losses as the combined group seeks to achieve cost savings of £35m a year.

The move will create the UK's biggest high street travel network with more than 1,200 shops – along with 4.3 million customers – and the second-largest provider of retail foreign exchange services.

While no cash will change hands, Thomas Cook will own 70 per cent of the new company with the Co-operative Group, which also has grocery, banking, funeral and pharmacy divisions, holding the remaining shares. Both firms will retain their separate branding, but about 70 of Thomas Cook's Going Places outlets will be rebranded The Co-operative Travel.

At a time when the travel industry is in the doldrums, the group aims to drive through annual savings of £35m through measures including combining headquarters, back office functions and reducing supplier contracts.

The deal increases Thomas Cook's footprint in the North and Midlands, where The Co-operative Travel is stronger, and reaffirms both firms' commitment to the high street. It is the third big deal that the Co-operative Group has completed over the past two years. In 2009, the Co-op acquired the local grocery chain Somerfield and Britannia Building Society.

Manny Fontenla-Novoa, the chief executive of Thomas Cook, stressed the complementary product offer, referring to its "four- to five-star" holidays, and the Co-Op's "three- to 3.5 star" and value products. If the deal gets regulatory clearance in December, the £35m annual savings will be achieved in 2012.

On job cuts, Mr Fontenla-Novoa said: "It is too early to give specific numbers on job cuts as we are awaiting regulatory approval for the merger. However, we do anticipate a limited number of job cuts, mostly as a result of combining headquarters and back-office functions, the consolidation of IT systems and, where there is crossover, some shop closures."

He added there would be "hundreds, not thousands" of job losses among the combined workforce of 9,000.

Both companies estimate the cost of achieving the savings targets at £30m.

Given the plans to consolidate head office operations, Co-op's travel staff at its Manchester headquarters are likely to bear the brunt of the cuts.

But the union Usdaw was largely supportive of the deal as its secures the long-term future of the Co-op's travel business. Usdaw said it will begin consultations with the Co-operative Group over the coming months to secure as many jobs as possible.

Peter Marks, the chief executive of the Co-operative Group, said: "Through our new-found scale we will secure a profitable and successful business together, which will be good for our people and our members." The Co-operative Travel retail business will post an operating profit of just £0.1m for the year 1 January. The Co-operative Group has described 2010 as "the most challenging year for the travel industry", citing the Icelandic volcanic ash cloud disruption among other events.

While Thomas Cook has also been buffeted by conditions, it has fared better and is forecast to deliver operating profit of £12.4m for the year to 30 September. Ian Derbyshire, the current chief executive of Thomas Cook's UK business, will hold the same position at the new company and Mr Fontenla-Novoa will be its chairman.

The merged entity will not include ThomasCook.com or any of its UK tour-operating businesses. Shares in Thomas Cook closed up 6.1p at 185.7p.