With first quarter results out this week, Sally White assesses what impact the tour operator’s digital transformation is having on the bottom line

Sitting with tin hats on, no doubt, Thomas Cook investors must have been relieved that 2015’s Q1 financial figures brought no more flak. The market view was that given the shock departure of CEO Harriet Green last November, anything might happen! After all, just before being pushed out she’d delivered a 44% leap in 2014 earnings!

Of course, famous for her ‘spiritualising digitalisation’ tactic for turning around troubled UK quoted Thomas Cook (TGC), Harriet Green created a rod for her own back. As rating group Fitch commented last month: “Against a target penetration for bookings by 2015, TCG’s online bookings rose to only 38% of total bookings at financial year ending 2014 (target 40%) suggesting that TCG, despite its strong brand name is yet to be identified as a first-call on-line brand.”

A bit of a problem since a focus on digital was key in her innovation, cost-cutting and marketing strategies!

However, back to the present! Numbers out this week show Q1 like-for-like revenue up 1.6% on the comparable period in 2014. There was a small cut in losses– from £53m to £56m – and gross margin fell from 22.1% to 21.6%. At earnings level, margin improved over the last 12 months from 2.9% to 3.9%.

That enabled traders to make a round-share-trip – so having risen by over 5% ahead of the figures (on lack of any scare rumours) the shares came back the same, to 126p (against the pre-Green 2011 low of 12p). Brokers took on board the company’s reassurances, especially on progress in its major UK base – summer sales are up 5%. Tougher trading in Germany and the Nordic region was expected, however, due to industry-wide trends. Yet even here recent weeks have brought “significant improvements”.

New CEO Peter Fankauser is sticking pretty much to his predecessor’s digital plan. The company’s international web platform, OneWeb (launched in May last year) has been “performing well”, he said, adding: “Our digital progress continues, with bookings on Thomascook.com, our main UK site, up by 24% for December alone, and by 10% for the quarter as a whole, although the removal of other low-margin hotel only business has led Group web penetration to remain at 38% over the last 12 months.”

Since Christmas, mobile and tablet traffic has overtaken desktop traffic and the conversion rate has increased by 20%.” But “it is unlikely”, he said, the 50% target for web penetration by end 2015 will be achieved.

Next steps

Fankhauser had already outlined his next-steps in a November conference call, which is expanding the successful Nordic model. There the strategy has been to communicate and engage with customers throughout the year before, during and after their holiday.

On personalisation he had this to say:

“We use integrated CRM capabilities to personalise our communication resulting in higher customer engagement and satisfaction as well as significant sales of high margin and service products. These generate in excess of £15 per customer more margin than ancillary sales in our other market.”

On conversions:  

“We are implementing the Nordic CRM solution to realise this opportunity in the UK and continental Europe. Given market differences, we do not expect to achieve the same conversion as in the Nordics, but even at lower conversion we see a £60 million to £80 million opportunity here.”

On costs:

“Digital is the channel [that] is the lowest cost to serve. In the UK, we estimate that the cost advantage is approximately £50 per customer. As the UK increases its online distribution, the estimate of cost benefit is of £30 million to £50 million in the UK tour operator alone, based on serving an additional 15% to 25% of our customers online.”

Criticism from brokers has been that TUI embraced the internet much earlier, its website is easier to use and its structure less monolithic. But they concede that Thomas Cook has been catching up fast and they liked the look of these numbers. So, pencilled in are forecasts of a turn-round at the pre-tax level from a loss of £114m in 2014 to profits of around £198m this year and £264m next. Earnings per share are in as leaping to around over 11p in 2015 and then in 2016, 26p a share.

At the moment, the only threats analysts can see are ‘geopolitical headwinds’. Not much Thomas Cook can do about those!

Missed the exclusive interview with Thomas Cook Chief Digital Officer Marco Ryan? Read it here or join EyeforTravel @ Mobile World Congress on March 2