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Thomas Cook CEO talks digital and breaking silos - expects £60m boost by 2018

Derek du Preez Profile picture for user ddpreez November 26, 2015
Summary:
It's been a difficult year for British travel firm Thomas Cook, but the company has given some details about its plans for digital and systems integration in its latest results.

Thomas Cook jobs
British travel group Thomas Cook has given a breakdown of its plans for digital growth over the coming years, as well as given details about its plans to simplify its business through the integration of processes across a number of regions. The plan being that it wants to get rid of a number of operation silos, all in an attempt to boost its business by up to £60 million by 2018.

However, It’s not been the best year for firm. A number of tragic events occurring in regions it operates in have meant that the company has often found itself having to navigate tricky (and sometimes very public) customer service debates, as well as deal with the impact of suspending flights to what were previous hot-spots.

Not only this, but the group was recently heavily criticised over a report published regarding the deaths of two children from carbon monoxide poisoning while on one holiday in Corfu in 2006.

But despite all the controversy and the awful events that hit the European travel market this Summer, Thomas Cook chief executive Peter Frankhauser has announced the company’s first full-year profit since 2010.

Thomas Cook has said that 2015 is a “year of real progress”, despite “turbulence” in some of its destinations. The travel firm reported a £50 million pre-tax profit for the year to September 2015.

Frankhauser said:

Of course, the past year has also presented considerable challenges for Thomas Cook as we confronted the mistakes that were made following the deaths of Bobby and Christi Shepherd in Corfu nine years ago. I am clear that we need to learn from the tragedy and do things differently in the future. Last week, we launched the Safer Tourism Foundation together with the children’s mother, Sharon Wood.

But we also recognise that change needs to come from within Thomas Cook, putting our customers first in everything that we do. That is why we have introduced customer satisfaction as a new internal measure of success and why we are rolling out a 24-hour hotel satisfaction promise for key hotels across the group. It is also why we are putting a renewed focus on the quality of our holiday offering and pushing hard to further develop our online and retail channels.

During the year our staff have shown great dedication in times of crisis, working tirelessly to support our customers. Their response to recent events in both Egypt and, earlier in the year, Tunisia, shows what we can achieve when we pull together. In a time of geopolitical uncertainty, that level of customer care is a key advantage of our packaged holiday offering.

The new financial year has got off to a good start with encouraging trading overall for Winter 2015/16 and Summer 2016. With our business on a firmer financial footing, we have a clear strategy in place to deliver greater value for customers and sustainable growth for our shareholders.

Some of the key elements of this ‘clear strategy’ include an increased focus on digital, CRM and process integration.

To 2018

The company’s financial results highlighted the focus the group has placed on technology through the creation of its OneWb system, a platform that is currently being used in the UK, but is expected to be rolled out to other regions in the near future. It said that the platform had led to increased conversion rates across every device type - up 10% for desktop, 16% for tablet and 67% for mobile devices, when compared to the previous year.

Thomas Cook also said that “through better implementation” of its CRM systems, it intends to present more tailored ancillary offers (such as insurance, airline meals, extra luggage, private transfers, room upgrades etc.) to its customers during the pre-departure period. It said that it is “sharing best practice” throughout the group in this area to help drive sales.

And whilst the company’s primary focus is on its core portfolio of own-brand hotels and a closely managed portfolio of partner hotels, as these have higher selling prices and better margins, chief executive Frankhauser also said it expected to reduce costs in Thomas Cook’s complementary products. During a webcast for analysts, Frankhauser said:

Complementary product is a lower margin, more commodity type product, but still a valuable sales line that customers want to buy from us. Here our objective is to reduce cost by relying on a more low cost electronic system to provide and distribute this product.

We currently make around £2 billion of revenue from complementary products. A 1% uplift in EBIT margin through cost efficiencies should deliver an uplift of around £20-£25 million in EBIT benefits by 2018.

However, where things got really interesting were when Frankhauser spoke about the company’s digital and restructuring plans. On Thomas Cook’s online ambitions, Frankhauser said that he expects digital sales to nearly half of the company’s overall sales by 2018.

We constantly aim to be more effective across all channels, not just the web. This means better training and more digital technologies in stores, as well as improving our online offering. Here we are making real progress.

OneWeb’s performance continues to get better and across the group the share of online sales grew to 40%, that’s up from 34% three years ago. We believe that the progress in this area should lead to benefits of £25-£30 million by 2018. Implicit in this benefit is a growth in online web share to around 45%.

Thomas cook strategy
Thomas cook simplification strategy

Frankhauser then went on to talk about the company’s One Tour Operator system, which aims to move the company away from a number of countries operating in silos towards a group that has integrated processes and reduced IT complexity. He said he no longer wants to be a “silo king”.

As part of our drive for efficiencies, we plan to move away from our legacy vertical structure, which leads to each source market being a silo. I’m only too familiar with this issue, having been a silo king in my time. But times are changing. We have already created a multi-structure in our airlines, the creation of our OneAirline system has bought real improvement and we now intend to replicate that success with a OneTourOperator system.

This approach means less duplication of activity across the group, less complexity and greater efficiencies. We expect these initiatives to generate £25-£30 million of EBIT benefits by 2018, representing a reduction in our overall cost-base of around 2%.

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