Thomas Cook – great brand name, shame no one knows what is stands for any more

Are tour operators, even – or especially – well-branded ones, ever fit businesses for public ownership?

The recent martyrdom of Thomas Cook chief executive Manny Fontenla-Novoa in the wake of 3 profit-warnings in 12 months, an increasingly intractable debt burden and a pulverised share-price might seem an eloquent-enough reminder that the answer is no.

If there is one golden rule with the City it is this: never disappoint. Serial disappointments lead to serious disenchantment. And serious disenchantment means penny-share status.

Yet tour operators are custom-made to disappoint. Just when they appear to be getting it most right, they are almost sure to be going badly wrong.

The first difficulty is that theirs is a market of extraordinary predictive complexity, requiring them to contract in advance for an indefinite number of flights and rooms in diverse foreign countries. In doing so they must take account of the cycle of the economy, the fluctuating cost of aviation fuel and the volatility of the foreign exchange markets.

Small wonder that, in attempting to combine the skills of an economist, a commodity specialist and a foreign exchange dealer, they often screw it up, even in the good years.

Second difficulty, most good years aren’t that good. Somewhere, somehow, nature is usually plotting to skew the best-made predictions of man, whether in the form of snow, volcanic ash, earthquakes, hurricanes or tsunamis. And where nature fails to surprise, you can be sure that man himself will step into the breach with some unspeakable act of terrorism or, to take a contemporary example, seismic political upheaval (step forward the Arab Spring). As if that were not enough, add sudden and unpredictable worldwide financial panic to the brew and stir.

Third difficulty: tour operators like Thomas Cook inhabit a low-margin, saturated market in which too many are scrabbling for too little reward. Why this should be the case is never entirely clear. Perhaps because the entrepreneurial barriers to entry are too low, perhaps in part because of the destructive, levelling effect of the internet. Whatever, the sector is characterised by businesses which seem in perpetual financial crisis. And which sometimes – as in the case of Harry Goodman’s ILG , number two in the UK market in 1991 – go spectacularly bust.

In this Darwinian struggle for survival, branding – despite the hundreds of millions of pounds annually spent by the industry on projecting a “trustworthy image” – comes a distant third to operational efficiency and febrile sales performance.

Thomas Cook is a good case in point. Arguably, it is the best-known package holiday brand in the world. Certainly it is the most venerable, with roots that stretch back to the temperance movement in the 1840s, the heroic attempted relief of General Gordon at Khartoum in 1884, and the exoticism of the Orient Express in the 1890s.

But what exactly does that brand stand for today? Is it British? Is it German? (The London listed company is majority owned by a German mail order group, Arcandor.) Is it Louise & Jamie Redknapp taking their annual vacation? Is it a lumbering UK mass-market organisation struggling to add a slick upmarket feel to its specialist international operations?

The brand is all and, confusingly, none of these things. It has been held hostage to a desperate struggle for corporate survival whose twists and turns over the past few years resemble a kaleidoscope on speed.

The complexity of its recent corporate history and ownership may be gauged from this Wikipedia page. But the important point to fasten on is Thomas Cook’s 2007 takeover of My Travel – another listed company in deep financial trouble. My Travel bought Thomas Cook market share, but at a fatal price. It was a pile-it-high-and-flog-it-cheap inventory – and a muddled and indebted one at that – just when Thomas Cook should have been moving in a different direction, towards more defined, upmarket offers.

Unfortunately for many Thomas Cook marketers, they are not to be given a chance to do their stuff. All this inept hand-to-mouth corporate engineering designed to keep the City and shareholders happy will shortly come home to roost. The company must now embark on a Draconian strategic review (for which read bloodletting) if it is to avoid falling into the clutches of the private equity gang. Guess who will be near the top of the sacrificial pile, marketers?

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