Thomas Cook prepares for second phase of cost cutting

Thomas Cook has announced plans for a second wave of cost cutting and profit improvement to be achieved by 2018.

Calling it ‘Wave 2’ the company said it would be "of the magnitude as wave 1", which is due to come to completion in 2015.

Under wave 1, the number of Thomas Cook retail stores in the UK has already been reduced from 1,101 to 874, UK brands cut from 28 to just 10, and UK web penetration increased to 36%. The online target is 50% by 2015.

Outlining plans to further reduce its high street stores, Thomas Cook said a recent report by retail property consultants, CWM, confirmed that its store network is highly flexible, with "well over half" available for renegotiation over the next three years.

Speaking to TravelMole today, CEO UK & Continental Europe Peter Fankhauser said: "We will be looking at which leases which are running out and decide whether we consolidate, but this is business as usual, we have no major cuts planned."

He refused to comment on whether there would be more disposals in the UK following the sale of Neilson earlier this month.

Unveiling its results for the year ended September 30, Thomas Cook said it plans to deliver further benefits from "enhanced margin management, more efficient use of shared services and a leaner organisational design".

"These will be delivered by a new Wave 2 cost out and profit improvement programme, which will drive benefits in gross margin as well as cost out through reduced overheads.

"We estimate that the total Wave 2 benefits will be of a similar scale to Wave 1 and will be achieved by 2018."

Thomas Cook said plans for the second phase would continue to be developed over the next six months and said it would provide further details on the "initiatives, savings and costs" when it releases its 2014 interim results.

Outlining the results of the first year of the transformation, CEO Harriet Green said: "I am delighted to report that the first 365 days in the transformation of Thomas Cook have been a great success.

"Our underlying EBIT for the year ended 30 September 2013 is up £86 million to £263 million, a rise of 49% compared with the previous year, putting our business back on a firm trajectory of profitable growth.

"We’ve taken out more cost more quickly than originally planned. The balance sheet has been strengthened; the £1.6 billion recapitalisation has been completed, maturities extended and we have almost halved our net debt. Finally and significantly, operational cash flow is gathering momentum.

"Yet the implementation of our strategy for sustainable profitable growth has only just begun. With our systemised approach to business, our products, people and processes and our powerful unified brand, we are confident of delivering significantly more."

Looking at winter bookings, Thomas Cook said margins are ahead of last year due to the closure of "certain high volume, low value business lines, particularly in the UK".

It said although UK bookings for winter are 7% lower than last year, they are 1% higher when you take into account discontinued businesses and the impact of disruption in Egypt.

Meanwhile, it said performance for summer 2014 is "in line with expectations".

"We are confident that our new products, continued trading improvement and the accelerated cost savings announced with these results will ensure that the group will more than deliver on its commitments," it said.

by Bev Fearis