THOMAS COOK FACES THE TRAVEL INTERMEDIARIES CRISIS

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The group, founded in 1841, is going to undergo a substantial re-organization, imposed by the new trend of online bookings, which will force many agencies to close.

Thomas Cook, the world’ oldest travel firm, two weeks ago announced a massive cut of 2 500 jobs, consisting in the 16% of its 15 500 current staff.
The group added 195 high street shops are going to close, decreasing the number of stores to 874, spread across UK and Ireland.
Thomas Cook has already cut 1 100 jobs over the last year and the high street agencies broke down from an initial number of 1267.

The worldwide economical crisis has certainly played an essential role in the number of losses, but it is also possible to state a change in the way of how people book holidays.
Travel agencies have been gradually replaced by low-cost booking websites, which easily allow to choose the transports and accommodations without extra charges.

So it’s possible to find two kinds of problems which forced Thomas Cook to cut the workforce, one internal and one external.

Internal issues of Thomas Cook
The travel agency’ main burden is the huge dept of £1.2bn, which rose after the Arab Spring put off thousands holidaymakers.
In 2011, the crucial year of the north African revolutions, the company registered a loss of £518 million, which has been increased of further £590 million in 2012.

The operation profit, which comes only from the services that the agency provides, in 2010 recorded £164m, while the last two years fell down up to -£319m.

The following chart (Figure 1) shows how the value of the shares collapsed in 2011, from a rate of £171 per share on April to £11 on October.

chart stocks TCook

[Figure 1 Source: yahoo.finance]

 

It is also possible to consider how the trend has been stable during 2012 and in the past months it’s even improved.
The reason is hidden behind the laws of the share markets. Even if the crisis of the agency is getting worse, there could be internal decisions which could grant trust to the investors.

For instance, in May 2012 the appointment of the new chief executive Harriet Green, and the consequent re-organizational plan, increased the share price up to 16%.
Now the massive cuts and the announcement of the move of many services on the online platform, has probably given the shareholders back the faith of getting the profits from the group.

The online is doubtless the key to understand the travel industry in the next years.
Figure 2 displays how Thomas Cook’s sales are constantly shifting towards online and the growth is expected to reach 7.8% within 2014.

online tomas cookThe Internet is also increasing the Thomas Cook’s Independent Travel, where costumers gather together their own flight, transfer and accommodation arrangements. The agency’s Independent Travel is estimated to raise its incomes from £4bn to £5bn within the 2014.

Thomas Cook has always been one of the leaders in the travel intermediaries (travel agents and tour operators), guaranteeing a solid filter between costumers and airlines, hotels or cruise companies.

But nowadays the web is shaking up this system, because it puts the costumer directly in touch with the company they need. Websites like booking.com are making this process faster, provoking the collapse of many travel agencies.

 

External issues of Thomas Cook
More than forty tour operator and travel agencies have gone out of business in the 2011-2012 period, according to Wilkins Kennedy, the UK’s 21st largest accountancy firm.
Wilkins Kennedy’s partner Anthony Cork, explains how the travel industry has been hit hard by the combination of the recession, natural disasters in Asia and the Arab Spring, which have all affected bookings, especially to popular package destinations such as Thailand, Egypt, Tunisia and Morocco.

“The travel industry is clearly suffering. Lower real incomes as a result of higher inflation have greatly impacted consumers’ discretionary spending. Rising unemployment is also causing many to worry about their job security, so they are holding off booking their holidays or downsizing their holiday plans,” Mr Cork says.

booking sales internetSo the problem involves not only Thomas Cook, but all the travel system, which is becoming more and more bound to Internet.

“The internet has turned the traditional tour operators’ business model on its head,” Mr Cork added. “People are increasingly confident in booking their holidays online. Rather than booking a fortnight away from a catalogue months in advance, they use low-cost airlines and wait for last minute special-offer hotel deals”.

Figure 3 highlights the boost of the website booking.com’s sales, which has been around 70% over the last six years.

In 2012, the website registered more than 148 million reservations, for a money value of 162 billion, the 60% of the overall travel sales worldwide, according to Newmediatrend.

Google Trend can also be considered an helpful way to understand what people tends to search.
The Google’s research of the word booking.com has substantially increased throughout the last three years, while the search of travel agency collapsed (Figure 4 and 5).

travelbooking google trends

[Figure 4  Source: Google Trend]

 

What conclusion can be drawn?
The data is clearly showing the future of travel’s bookings is into the web. Travel agencies and tour operators are moving the services online and likely in the next years (or months), many high street shops will close.
So the Internet can be considered the reason and the solution regarding the issues of the travel intermediaries, which are facing the worst crisis of the last few decades.

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References:
http://www.statisticbrain.com/internet-travel-hotel-booking-statistics/
http://markets.ft.com/research/Markets/Tearsheets/Summary?s=TCG:LSE
http://www.linkiesta.it/alpitour-crisi-agnelli
http://www.guardian.co.uk/business/2013/mar/13/thomas-cook-city-breaks-turnaround-strategy
http://www.google.com/trends/explore?hl=it#q=travel%20agency%2C%20booking.com&cmpt=q
http://ara2010.thomascookgroup.com/business_review/market_review.shtml

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