Thomas Cook's plan: More disposals and consolidating confusing array of brands

Thomas Cook Group Plc, the U.K. tour operator, plans to raise as much as 150 million pounds ($224 million) from disposals and may expand ties with low-cost carrier EasyJet Plc to gain airliner capacity.

Another 50 million pounds have been added to a savings plan to bring profit improvement to 350 million pounds, Chief Executive Officer Harriet Green said on a call today. “We expect more to come,” she said. The stock gained as much as 19 percent in London trading, the most in more than a month.

Thomas Cook is midway through a three-year turnaround and last week said it began a 90-day consultation period to cut 2,500 jobs, or 16 percent of the workforce, as it closes underperforming stores in the U.K. The group has also consolidated its airline operations to achieve savings.

“We are ahead in our transformation schedule,” Green said, adding that the company has already achieved 60 million pounds of its 350 million pound profit improvement target.

Thomas Cook gained as much as 17 pence to 104 pence, and traded at 95.5 pence as of 9:30 a.m. in London. Before today, the stock had surged 81 percent this year after tripling in price in 2012. That’s after a 92 percent decline in 2011.

This year’s prospects are “robust and summer trading is progressing well with improved margins,” the company said in a statement today. The 171-year-old tour operator, which last year agreed to buy seats on flights provided by EasyJet, also said it is “taking steps to optimize procurement of third party capacity and reviewing the balance between our in-house and third party capacity.”

EasyJet Ties

Discussions continue about developing ties with EasyJet with the existing partnership accounting for less than 5 percent of Thomas Cook passengers, Green said. Talks have not expanded to include other carriers, she said.

“I would expect that further consolidation of Thomas Cook’s airline business will see it look for more seats on EasyJet flights,” said Donal O’Neill, an analyst at Goodbody Stockbrokers. “These kind of transactions support the on-going earnings growth momentum and margin expansion story at EasyJet.”

The company will undertake a review of its capital and update investors in May, Green said. The review may lead Thomas Cook to issue debt or new equity.

Thomas Cook said it is targeting new product revenue of more than 500 million pounds in 2015, with more than half coming from online transactions that currently represent about 34 percent. Margins for the U.K. business should exceed 5 percent in 2015, the company said.

The strategy review has largely flushed out what units to sell, with a large portion coming from the U.K. business that has been hit harder than German and Scandinavian operations, Green said. She would not name disposal targets.

Editors: Benedikt Kammel, Tim Farrand.To contact the reporter on this story: Robert Wall in London at rwall6@bloomberg.net. To contact the editor responsible for this story: Benedikt Kammel at bkammel@bloomberg.net.

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