Operator reports drop in UK operating margin as higher costs bite. Amie Keeley and Lucy Huxley report
Mottershead sets sights on more concept hotels
Thomas Cook plans to increase its number of concept hotels from 200 to 350 over the next three to five years as it reduces its overall portfolio of differentiated hotels from around 3,000 to 2,500.
Chris Mottershead, who was recently appointed chief of UK source markets & group differentiated products, said the strategy would ultimately improve Cook’s bottom line.
“We have about 3,000 [differentiated] hotels which are our core focus, where the majority of our volume goes,” he said.
“They might not be exclusive, but they’d have at least 1,000 guests going into them across the group. About 80% of our guests go to our differentiated properties.
“We will gradually narrow that down as we seek to improve the quality. We have removed 100 in the last 12 months and that will continue. Star ratings are based on facilities, not quality, or health and safety. So it’s my job to negotiate with owners to ensure the profile of our hotels is moving upwards, so we have fewer cheap and cheerful and a greater proportion that are high-quality and high‑value.”
Mottershead said it was also his brief to identify new concept hotels – the ones Cook either owns or manages through brands such as Sentido and Casa Cook – over which it has complete control of service delivery.
“If we already guarantee a property and have exclusivity in it, then the next step might be to make it a concept hotel with a five‑year deal,” he said.
“The highest-rated hotels on TripAdvisor, or those with the best Net Promoter Scores, tend to be the most in demand, and these tend to be the most profitable.
“There is a clear correlation between quality and margin/price. Customers are happy to pay more for better quality and service.”
Mottershead said Cook topped up its core differentiated hotel offering with its ‘Complementary Hotel’ portfolio, thanks to its relationship with SunHotels, while Expedia supplies Cook with its city hotel portfolio.
“This makes us more efficient. We can leave SunHotels and Expedia to contract these additional properties,” he said.
Cook revenue tops £9bn but costs hit profit margin
Thomas Cook reported a 9% increase in revenue to just over £9 billion in its group-wide year-end results, but growing competition for holidays to Spain from the UK market dented profit margins.
Pre-tax profit rose to £46 million for the 12 months to September 30, up from £34 million last year. Profit after tax stood at £12 million.
However, the group’s gross profit margin fell 1.3 percentage points to 22%.
Cook’s UK tour operating gross profit margin was down 0.7%, the steepest decline of all its markets.
Fankhauser said UK profit margins had been hit by cost inflation which led to higher bed costs in Spain that could not be passed on to customers, a weakened pound and a surge in fake holiday sickness claims.
Fankhauser predicted holiday prices for Spain would increase by up to 10% next summer and said those seeking a cheaper alternative should look to Turkey and Egypt.
Just over 42% of all Thomas Cook holidays sold were to Spain this summer but Fankhauser said he expected this figure to go down next year as capacity was redirected to other destinations. Historically, about 30% of Cook’s holidays have been to Spain.
Cook said its customer focus had seen its Net Promoter Score, a measure of people’s propensity to recommend the brand, had increased by four points year-on-year and nine points since 2015.
It also said it had seen a growth in repeat bookings since 2015 of 51% to own-brand hotels and 15% to differentiated hotels.
Cook said UK bookings for this winter were up 1% year on year, buoyed by growing demand for Turkey and Egypt. Prices were up 4%, which Cook said reflected bed cost inflation in its biggest winter destination, the Canaries.
For summer 2018, Cook said its UK capacity was 27% sold, with average selling prices up 6%.
Following the results announcement on November 22, Cook’s shares closed down 8.4%.
Shops ‘will have to be assessed for profitability’ as online sales surge
The boss of Thomas Cook said the shift towards online sales is moving “faster than expected” and did not rule out closing more high street shops.
Chief executive Peter Fankhauser said online bookings increased 27% this year.
“The shift to online is going faster than we thought and that means that we have to follow the customer and be where the customer expects us to be,” he said.
“That is still in the high street, but if we get that shift then we have to manage those stores for profit. If the stores are unprofitable then we have to check whether we still want to have that store or close it.”
Thomas Cook has closed dozens of shops this year as it consolidates its retail network.
Fankhauser said around 46% of its total bookings derived from e-commerce, while third-party travel agents made up 15%.
“We value those independent agents highly and take good care of them,” he said.
Fankhauser says rivals ‘jealous’ of Cook-Expedia deal
The boss of Thomas Cook has branded as “jealous” those who thought it was “going into bed with the enemy” when it announced its tie-up with Expedia in September.
The deal will see the online travel giant become the preferred provider of hotels for Thomas Cook’s city and domestic holiday business.
Group chief executive Peter Fankhauser said: “It was the first alliance between a tech company and a holiday company.
“We were very attractive for Expedia to partner with us, and for us, and we are going to digitise our business not just from the inside, but also from the outside with the help of Expedia.
“So those people who said we were going into bed with the enemy – it was pure jealousy.”
He also said he was surprised no rival had yet copied its 24-hour satisfaction promise in resort.
This sees the operator promise to resolve complaints on site within a day or give the customer holiday vouchers to compensate.
Fankhauser also hailed Cook’s ‘Choose a Room’ and ‘Guaranteed Room on Arrival’ initiatives, which he described as “huge successes”, and said the group’s new Thomas Cook Money proposition would “disrupt” the sector.
‘We’ve seen a massive drop in fake claims’
Thomas Cook has seen a “massive decline” in fake holiday sickness claims this year, according to the group’s chief executive.
Peter Fankhauser acknowledged the recent surge in fraudulent claims from UK holidaymakers had “influenced” the squeeze in UK profit margins, but predicted the number would drop next year.
“We’ve seen a massive drop in claims and the action we have taken to prevent this fraud is going to have an impact,” he said.
“We don’t expect to have the same (level of claims) next year but we still have work to do.”
Fankhauser would not reveal how many fake claims Cook had received but said it was a “uniquely British issue”, with no claims received from its German clients.
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