Thomas Cook halves losses as it plans second round of cost cuts

Thomas Cook chief executive Harriet Green
Thomas Cook chief executive Harriet Green
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THOMAS Cook said losses more than halved in the first year of its turnaround and the group is planning another round of cost reductions.

The world’s oldest travel firm said that while further job cuts can’t be ruled out, the focus won’t be on reducing the workforce.

Under new chief executive Harriet Green, the former boss of Leeds-based electronics distributor Premier Farnell, the firm has slashed its network of UK travel agencies from more than 1,100 to 874, leading to 2,500 job losses.

Ms Green said: “No chief executive can give assurances about exact numbers of jobs, but what I can say is that Thomas Cook is back and it’s healthier.”

She added that the turnaround has been a “great success” after losses reduced to £207m in the year to September 30 from £590m the previous year.

“The first wave of cost savings was about picking off the low-hanging fruit, and wave two will be about generating savings through better using Thomas Cook’s scale in areas including transportation and purchasing,” she said.

The tour operator is recovering from a dramatic slump over the past three years, hit by the eurozone debt crisis, high fuel costs and political turmoil in popular holiday destinations such as Greece, Egypt and Tunisia.

Since travel industry outsider Ms Green took over as chief executive 16 months ago, Thomas Cook has achieved a steady improvement in its finances through job cuts, travel agency closures and a series of disposals to reduce debt.

The 172-year-old company posted earnings before interest and tax (EBIT) up a forecast-beating 49 per cent to £263m in the year to September 30, helped by strong demand for fixed-price holidays to Spain, the Canary Islands and Turkey.

The consensus estimate from analysts surveyed by Thomas Cook was for EBIT of £251m.

Ms Green said the business is now on a firm trajectory of profitable growth and she is confident of delivering “significantly more” in the coming years.

Thomas Cook aims to cut costs by £440m by 2015, which is 10 per cent more than previously expected – and to deliver a further £440m of savings by 2018.

It also raised its target for revenue from new products, such as exclusive hotels and city breaks, by 40 per cent to £700m by 2015 and aims to hit £1.2bn by the end of 2017.

The group said efforts to boost online holiday bookings are paying off, with 36 per cent now booked over the web.

The plan is to increase this to more than 50 per cent by 2015.

Thomas Cook said it is raising performance targets under the recovery plan, helped by the faster-than-expected progress on slashing costs from the group, which will see it take out £340m by the end of the new financial year – up from an original £315m goal.

It will unveil its cost-cutting plans when it reports half-year results.

Thomas Cook’s shares closed up x per cent, a rise of xp to xp as investors cheered progress on the overhaul and the prospect of further savings.

The shares have trebled in value since the start of the year.

The group’s UK arm delivered underlying earnings of £66m, against largely flat results the previous year.

It said the political unrest in Egypt is costing the business, with the worst of the impact felt in the fourth quarter.

This hit full-year group-wide revenues by around £40m and earnings by £10m.

The problems in Egypt have knocked winter bookings following travel restrictions to the country, contributing to a seven per cent slide in UK bookings for the current season.

Thomas Cook said trading was lower as it shifted away from less profitable business, but UK bookings are one per cent higher on an underlying basis with the Egypt impact stripped out.

This year’s summer holiday season suffered from poor demand for last-minute bookings following the UK summer heatwave, compared with a strong late market as a result of the wash-out weather in 2012.

Thomas Cook said bookings so far for next summer are in line with its expectations.

Accendo Research analyst Mike van Dulken said Thomas Cook’s growth forecasts will be “music to investors’ ears”, with the shares likely to continue their “meteoric recovery” from as low as 8p in late 2011.

In August, the company announced its first third-quarter profit since staving off bankruptcy in 2011 and told investors to expect more from its restructuring.