Thomas Cook checks out of 500 hotels, axes 200 shops

Reuters, Wednesday 14 Dec 2011

Thomas Cook will close 200 under-performing shops and 500 hotels and is lining up further disposals, as it battles to cut debt and restore confidence among investors and customers after a bailout by its banks

Thomas Cook
A sign hangs in front of a branch of travel agent Thomas Cook (Photo: Reuters)

The world's oldest travel firm, which last month secured a rescue package from lenders, said the move was part of a turnaround plan that would deliver an annual profit improvement of 110 million pounds ($171 million).

The future of Europe's second-biggest travel firm by sales has been in question since it asked lenders to come to its rescue twice in five weeks, sending its shares into freefall, after it warned of a possible debt default.

"We have instigated significant management changes and implemented a turnaround plan in the UK to address our areas of underperformance," acting chief executive Sam Weihagen said in a conference call on Wednesday.

The company said 660 jobs would be at risk as it closes 200 of its 1,300 shops in Britain. Unemployment in Britain is at a 17-year high, data revealed on Wednesday.

Additionally, Thomas Cook plans to cut its airline fleet to 35 from 41, invest more in its online business, and consider more disposals on top of the 200 million pounds of non-core asset sales announced in July.

Weihagen said the company would review all its businesses and declined to rule out selling its Scandinavian arm, described by Barclays Capital analysts as its "crown jewel".

Thomas Cook is seeking a CEO after the departure of industry veteran Manny Fontenla-Novoa in August, but will press on with the strategic review due to the urgency of its position.

"We can't wait for a new CEO to start before we send for a strategic review," Weihagen said.

Thomas Cook's banks, led by Barclays, HSBC , RBS and UniCredit, last month agreed to provide a new 200 million pounds credit facility.

The company said on Wednesday trading had picked up since then, with summer bookings in Britain up 8 per cent year on year, having slumped by 30 per cent in the days after news broke of the company's financial troubles in November.

"We are very encouraged by that figure," Weihagen said. "It took us a week or so to get back to the booking levels we had before the dip. I'm fully confident that is behind us."

Thomas Cook, which has issued a string of profit warnings, said operating profit fell 16 per cent to 304 million pounds in the year to September.

That was at the bottom end of forecasts in a 306-321 million pounds range, with the average at 317 million, according to a Thomson Reuters I/B/E/S poll.

The company has been hit hard by tough trading conditions, especially in Britain, where its core customer base of families with young children has been particularly affected by tough economic conditions.

It has also been affected by unrest in popular destinations such as Egypt, Morocco and Tunisia.

In contrast, the world's biggest tour operator, TUI Travel , reported a better-than-expected full-year profit.

Germany's TUI AG, TUI Travel's majority owner, said on Wednesday it expects a net profit in this fiscal year as it passes on rising input costs to holidaymakers and weathers strong economic headwinds.

Thomas Cook, which has been operating for 170 years, said on Tuesday it was examining further ways to cut net debt, which stood at 891 million pounds at the end of September, up from 804 million a year earlier.

Finance director Paul Hollingworth told reporters the company had not ruled out an equity fundraising.

"We've made no secret of the desire to get debt down and to look at all and any means to do that. Clearly in terms of the share price today that is more problematic. Hopefully, we can rebuild confidence, show that we've made progress on disposals and then that's an option that may come about," he said.

Hollingworth said he was confident the company would not have to tap lenders for any further funding.

Shares in Thomas Cook, which have crashed by more than 90 per cent since the start of the year, were down 7.4 per cent to 13.73 pence at 1105 GMT, valuing the former FTSE 100 constituent at just 124 million pounds.

Russia's oil-to-telecoms holding company Sistema is planning to sell a stake of up to 2 per cent in Thomas Cook, it said on Wednesday.

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