Re-icing the Thomas Cook cake

This week’s Thomas Cook interim results looked very impressive with the company identifying £390m ­of savings, forecasting a return to profitability for the full year and most importantly laying out a robust solution to its debt mountain.

So clearly Harriet Green has quickly got to grips with the financial issues and has laid the foundation for a healthier future. However, there are still a large number of fundamental issues that need addressing if Thomas Cook is really going to be able to take on TUI head to head.

To understand these issues, its probably worth reviewing the consolidation that created these two travel giants. Thomas Cook’s tour operation was originally formed by the amalgamation of Sunworld, Flying Colours and Inspiration in the late 1990’s. Sunworld and Flying Colours where relatively new start ups, which were acquired and merged together over a 6 months period and immediately added to by the acquisition of Inspirations/Caledonian Airways. So you can imagine the pain of trying to put all three together in a very short period of time.

Further growth by acquisition occurred 7 years later with the purchase of the highly distressed MyTravel Group of companies, which was rapidly relocated to Peterborough, with a 95% redundancy level. To complete the melting pot 400 Coop Shops where acquired just before Thomas Cook started to implode.

Thomas Cook’s tour operating, retail and airline infrastructures have all been created by acquisition and offer relatively weak foundations, compared to its main rival’s TUI.

Most commentators viewed the merger of the strongest brand in terms of quality e.g. Thomson’s, with the industries best management team lead by Peter Long at First Choice, as the dream ticket.

Firstchoice started the process of creating differentiated Hotel product with the launch of Firstchoice Holiday Villages and Sensatori hotels over 10 years ago. They planned and ordered the Dream Liner aircraft that are only now coming into service with TUI, 8 year ago.

These decisions were key in creating the “differentiated” product that is proving so profitable for TUI and driving their current strong financial performance.

Harriet Green has not yet put a foot wrong, however she does not have a “Magic wand” that can short cut 10 years of planning and financing required in order to create large volumes of differentiated product.

I must admit to concerns about the process of driving overhead savings by abandoning the old brand silo structure and moving to centralised buying, commercial and finance functions. This is likely to rip the heart out of most of Thomas Cook’s secondary brands like Airtours, Hotels4U and Club 18-30. Although this may be a sacrifice which has to be made, there are numerous examples in travel where 2 plus 2 can quickly amount to only 2 e.g. lose the brand and lose the volume/profit.

So although I understand the logic of what Thomas Cook are tying to do and cannot fail to be impressed by the share price rise, I think I will continue to invest my money in TUI. For me its still a gamble that the “Re-iced” Thomas Cook cake, will not start crumbling in the next few years as it has to cover the hard yards required to take it back to substantial profits.


Mobile First ! Not convinced

At the recent WTM round table on Mobile, the latest buss word was “Mobile First”. This is where companies put mobile at the heart of their development program by developing for Mobile First, rather than retro fitting development on to mobile platforms.
Soon 75% of the UK population will own a Smart phone and the 20% growth Google has seen in search volumes in 2013, has all come from mobile. So how could you possible ignore this?

Simplistically, mobile just makes the internet much more accessible to customers, allowing them to fill “Dead time” interacting with their phones 150 times a day or sitting on the couch at home using tablets.

However, the advent of mobile presents travel companies with masses of complexity and problems beyond even the non-trivial requirement to introduce web sites that scale depending on screen size, offer different search process based on device recognition and move to a “Recommendation basis” offering 2-3 offers rather than hundreds of search results.

Online search has always been a highly track-able advertising method, using “Cookies” or “Mookies” (Mobile version of Cookies). These allow attribution so that advertisers can track customer’s through the entire booking process, giving credit to early stage search’s that do not result in a booking, but crucially introduce customers to advertisers brand in the first place. But mobile breaks this flow, because it has introduced multiple platforms.

Customers often complete complex holiday bookings on the desktop which is a lean forward technology suited to data input, that may have originated on a phone or more likely in my opinion tablets, which I regard as a lean back technology more suited to researching holidays whilst sitting on the couch. So unless you’re a major brand who can afford to take the gamble that mobile phone advertising builds brand awareness and early stage interaction, its very hard to justify it. At the moment Mobile does not deliver an effective return on investment (ROI) and I hence am not convinced OTA’s should adopt a Mobile Phone first approach.

Tablets are a completely different story. Their simplicity of use and always-open mode has lead a surge in house wives and silver surfers bypassing desktop and using these as their platform of choice to access the Internet. Unlike phones, the screen real estate makes it relatively simple to adapt existing travel sites, with a few minor tweaks to get over “clumsy finger” syndrome and gives direct access to the core holiday decision makers in the family e.g. women.

Currently high roaming charges mean that 60% of customers travelling on holiday turn off data roaming and the ability to access the Internet. However, the massive increase in WIFI access in hotels, restaurants and coffee shops, along with impending European legislation aimed at reducing roaming charges should soon remove this barrier.

Once the issue of roaming charges have been solved, mobile provides a great opportunity for OTA’s to extend their holiday offering with in-resort services via the phone. At the moment OTA’s suffer from the “Tarmac wave” where they send customers on holiday and just have to hope that they have a good time. They have no real ability to interact customers while they are on holiday, unlike the traditional tour operators who have in-resort infra structures and Reps. Moving forward OTA’s will be able to offer phone based support tools. These may be as simple as restaurant recommendations, local taxi numbers or maps marking all local attractions, delivered on their phones either on a cached basis or via live streaming.

So in summary I believe mobile represents another major evolutions of how people access and use the Internet. But in terms of driving holiday bookings I do not see the ROI on mobile phone advertising at present and will be avoiding it.
In many ways Mobile reminds me of the explosion of Social media. We all know it’s an opportunity, but so far nobody has found a way to commercially use it to sell holidays, irrespective of the marketing hype it receives.