Analysis: Could the future be orange for Thomas Cook?

Analysis: Could the future be orange for Thomas Cook?

Thomas Cook's decision to block-book seats with easyJet guarantees flexibility for the operator and provides the airline with an additional sales channel. Ian Taylor reports

Thomas Cook's seat deal with easyJet - it will use the carrier's flights in its package programme from nine UK airports­ - makes a lot of sense.

It's a head-turning deal in that it's the first of its kind between the companies, the first time Thomas Cook has reserved seats on a no-frills carrier and the first time easyJet will have flown so many customers for a tour operator.

Yet the agreement represents a logical progression for both companies more than a departure point for either, although it is a bigger deal for Thomas Cook than for easyJet.

In the words of a Thomas Cook insider: "It's quite a bold move."

The deal represents less than 3% of Thomas Cook's UK summer holiday programme and, in one sense, amounts to no more than using third-party flying as operators have always done.

The question is how Thomas Cook proposes to follow up. By reducing its in-house flying, perhaps? By block-booking a greater number of easyJet seats for future summers?

Thomas Cook will say the deal is all about flexibility. However, sources at Gatwick suggest there will be cutbacks and job losses at Thomas Cook Airlines.

Thomas Cook will insist this has nothing to do with its airline: it's about third-party flying; it represents additional seats; it's about more flexible durations.

Yet the company has already scaled back its airline, cutting six aircraft ­ mainly on long-haul ­ in the past year.

Thomas Cook has also sold and leased back 19 aircraft, mainly in Germany, allowing it to make further cuts as leases expire.

At the same time, new chief executive Harriet Green is engaged in a business review that is likely to lead to a big shake-up.

EasyJet will not have given Thomas Cook a cut-price deal. It will have agreed to sell seats to Cook only at a price above the average it achieves by selling direct to consumers. In the words of one industry insider: "EasyJet wouldn't do it otherwise. Load factor is not an issue for the airline."

Cook will have block-booked the seats at a rate that suits both companies. The benefit to Thomas Cook will be that even at a price above the easyJet average, the costs will be below those of using Thomas Cook Airlines -­ allowing a better margin on the package sale.

Neither of the companies is going to divulge details and the price will remain hidden in the operator¹s package prices, but Thomas Cook will see the deal as lowering its cost base and removing risk.

Thomas Cook is not the first operator to sign a seat deal with easyJet. The carrier had a two-year contract with Saga involving 60,000 seats a year.

It is not even the first deal easyJet has done with Thomas Cook. The carrier has sold ad-hoc seats to the operator for a while and has already flown tens of thousands of Thomas Cook passengers.

So it is by no means a game-changing deal for easyJet, amounting to less than 0.3% of the budget airline's flying. For the carrier, Thomas Cook simply presents an additional sales channel.

There will be no separate service for Thomas Cook clients who fly on easyJet. But if everything goes well, and there is little reason why it should not, we might expect to see bigger deals between the pair in future.

One thing we can be sure of is that easyJet will have taken steps to protect itself against further financial problems at Thomas Cook. In that respect, the deal puts a fresh perspective on the frequent claim (from within the trade) that airlines present the biggest consumer-protection problems.

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