“Only when the tide goes out do you discover who’s been swimming naked.” So went one of the many business insights from legendary investor Warren Buffett.
And when the tide went out with a rush following the global crash of 2008, Thomas Cook was found to be less than fully clothed.
Dating back to 1841, the vertically integrated operator was one of the UK’s biggest and most famous brands. But by November 2011, in the wake of the crash, a combination of factors meant the operator was forced to put its full-year results on hold “as a result of deterioration of trading in some areas of the business”.
The news followed hot on the heels of three profit warnings that year from the operator, which sent shockwaves through the industry, as the company sought to secure a £100 million loan. Meanwhile, the share price plummeted 75%, from 41.2p to 10.2p, wiping £265 million off the company’s value.
Rescue plan
A turnaround plan included a £1.4 billion refinancing deal; the planned closure of 128 shops with 72 more potentially on the cards; and the sale of various property assets.
In the middle of 2012, Harriet Green was appointed chief executive of the Thomas Cook Group, who then promoted Peter Fankhauser as chief executive UK and Continental Europe in November that year, before he became chief operating officer in November 2013.
Work has continued non-stop to further improve the operator’s books, resulting in a £32 million rise in underlying earnings before income and taxes in the three months ending June 30, making it the eighth consecutive quarter of increased profits.
“Streamlining is like mowing grass. If you don’t do it every week and cut it after two months, you have to take out a big machine”
And now, as we sit discussing his turnaround in Cook’s corporate offices in London, there is no hiding that Fankhauser is pleased: “We have made huge progress compared to where we were in November 2011,” he says proudly. “This is really a journey of differentiating Thomas Cook.”
Much of the work, he says, has been focused on streamlining the company in order to ensure it is working as efficiently as possible. “A big organisation tends to become bureaucratic if you don’t take care,” Fankhauser admits.
In the UK, this meant looking at aspects of the business that were either not working or were fully integrated, and removing whatever distracted the business from its key focus - the customer.
Fankhauser says: “Streamlining processes is something that we have to do all the time.
“It is like mowing grass. If you do it every week it goes without big trouble. If you don’t do it every week and cut it after two months, you have to take out a big machine.”
He adds that not only has head office become more efficient by streamlining the business, but also the jobs of those working on the front line.
“With the example of the shops, if you take out 20% of the admin, which was not really adding value, the sales person has more time to talk to the customer.”
Offloading process
Elsewhere, Fankhauser admits the decision to focus on Cook’s core business led to a process of divestment, which saw Gold Medal sold to Dnata for £45 million in February while the sale of Neilson Active Holidays for £9.15 million was announced in November.
He says that although Neilson had been owned by Cook for decades and was a key provider of its ski holidays, it was considered to be too niche for the operator’s core business and so the decision was made to sell it.
However, Fankhauser is proud of the relationship the two firms managed to maintain in the wake of the deal: “When you sell a company you have to be fair and keep your promises and this is what we did,” he explains. “We are happy to provide Neilson with our flight offering and we are happy to sell them in our shops.”
Following the series of cuts, Fankhauser says the operator is keen to continue its profit growth through positive moves. He insists a core focus at the moment is the growing of the operator’s winter sun product, which has led to Cook expanding and improving its Turkey offering, while it has also increased flight frequency to the Caribbean, in particular the Dominican Republic.
He adds that Cook will also be the only charter operator flying direct to Cuba this winter, and is also eyeing up the Middle East, including Dubai, for some winter sun opportunities.
Fankhauser explains that the number of carriers flying to the region means Cook would not need to operate its own flights there and customers would not be limited to any particular duration once in resort.
A renewed focus on the trade has also been part of the back-to-basics approach, with agents benefiting from the Wish List that connects the retail and online channels. Originally called DreamCapture, this involves emailing customers following a shop consultation.
“Wish List emails can help improve the planning stage. We don’t only want to be brilliant with technology but also with the personal effect”
Fankhauser says the scheme - which sees an agent paid commission on any enquiry they generate even if the sale is completed online - has been a success, with “thousands” of emails sent out.
He adds that each Wish List is accessed on average 2.5 times, while 90% of Wish List bookings end up being made in store. The online conversion rate is also “significantly higher” than the industry average.
“They [Wish List emails] can help improve the experience of the planning stage and they are well accepted,” Fankhauser says.
“This is exactly what high-tech, high-touch means. We don’t only want to be brilliant with technology but also with the personal effect.”
Meanwhile, the operator has been focusing on the properties it offers and, having conducted a survey of 18,000 consumers around the end of 2012, has discovered that providing the proportions are right, customers are quite happy to share hotels with other nationalities. It is also using this process to continue down its own path of differentiation for customers in resort.
Mixing it up
“Out of the survey we learnt a lot,” Fankhauser says. “We learnt that the myths are really myths sometimes and that people like to be in hotels where they meet other nationalities.
“It is not about the amount of properties, it is about the number of guests we have in the properties.
“Some of our competitors are pretending that we never get any good hotels, but we proved that we are in effect able to get really exciting properties where we have exclusivity.”
As a result Fankhauser is positive that the cuts are over now, and that recovery will not only continue, but be built through positive means, adding: “This is really the foundation to profitable growth in the future - you have to cut the rose bush to let it grow better.”
By the end of our interview, I can’t help feeling the next time the tide goes out on the global economy, Cook will be found to be wearing a full wet suit and, most likely, a pair of flippers.
