Thomas Cook sees a “significant opportunity” to operate more profitably in the UK overseas holidays market following a thorough overhaul of the business.
The group today outlined plans to improve UK profits by £110 million over the next three years for a total estimated cost of £60 million.
Loss-making Cook is to refocus its product strategy, improve yield management and rationalise distribution – kicking off with the closure of 200 under-performing agency branches from the combined estate of 1,300 branches created through the merger with the Co-operative in October.
Cook admitted that the UK business had become “overly complex and too volume driven”. It is to relaunch its websites in time for the peak New Year trading period as it strives to see the current 25% share of online bookings increase to between 40%-50% “over time”.
Controlled distribution is expected to rise to 84% for mainstream holidays following the Co-operative retail merger. High street shops accounted for 48% of Cook’s UK package holiday sales this year.
“Increasing the proportion of in-house distribution is strategically important as it reduces external commission costs, provides better yield control and drives higher repeat business,” Cook said.
The UK turnaround plan will see a refocus on mainstream package holidays by increasing the share of differentiated hotels from 31% to 50% over the next three years.
More than 500 under-performing hotels have already been cut from a portfolio of more than 2,200 properties for summer 2011. The portfolio will further be cut by 1,500 hotels over three years.
The aim is to concentrate customers into fewer, higher-performing hotels to drive stronger supplier relationships, higher customer satisfaction rates and efficiency benefits.
Action will be taken to deliver higher growth and better returns from its independent operations which accounted for just over a quarter of UK revenues in the year to September.
The group sees a “significant opportunity” to sell direct to the consumer and better allow people to create dynamic packages with flight consolidator Gold Medal and its ancillary business providers.
Cook said, as it reported annual group pre-tax losses of £398 million: “Despite the erosion of merge benefits and the input cost inflation the business as faced, the new management team sees a significant opportunity for Thomas Cook to operate more profitably in the UK oversees holiday market.
“The market in large, mainstream package travel continues to be an important component and independent travel is forecast to grow. The UK business has significant capabilities across both mainstream and independent travel.”
It outlined plans to make a £15 million improvement by refocusing on the mainstream sector, £10 million from cutting its UK airline capacity, £35 million from better yield management, £25 million from rationalising distribution, and £25 million from stripping out operational inefficiencies.
Cook is taking a “cautious stance” to summer 2012 with an 8% cut in capacity from the UK in reaction to continued uncertainty in the economic outlook. The programme is 24% booked, 8% ahead of this time last year, with average selling prices up by 5%.
The winter 2011-12 programme from the UK is 54% booked with capacity cuts focused on long-haul where it is 82% booked with 58% less to sell than last year. The average winter selling price from the UK is down by 1% with cumulative bookings down by 11% and capacity down by 8%.
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