Analysis – Thomas Cook

The shock merger between travel operators MyTravel and Thomas Cook is likely to lead to a raft of job losses in the new-look marketing department as the two businesses streamline their operations to create the UK’s second largest travel company.

The proposed £3bn deal has sparked talk of widespread job losses across the combined group’s 19,000 staff in the UK as the companies restructure their businesses to realise cost savings of up to £75m a year.

Thomas Cook has confirmed the major focus of the "inevitable" losses will be in the UK, with analysts speculating that the largest savings will come from the axing of middle management jobs.

David Pope, leisure analyst at Brewin Dolphin Securities, says: "Cost savings invariably and unfortunately mean job losses." However, he adds that he does not expect the impact on the marketing function to be on a "massive scale".

Industry commentators expect Thomas Cook marketing director Simon Carter, who joined the company in October (MW October 26, 2006), to remain in the role. But it is unclear where MyTravel group marketing director Tim Marsden will fit into the new set up.

International ownership
The enlarged group, which will have its headquarters in Britain with a listing on the London Stock Exchange, will be 52% owned by German department store chain KarstadtQuelle – which owns Thomas Cook – and 48% by shareholders of MyTravel. The two businesses will be rebranded as the Thomas Cook Group with MyTravel’s retail arm Going Places and its tour operator operation Airtour Holidays expected to be included under the banner.

The group is to be managed on an interim basis by joint chief executives Manny Fontenla-Novoa, the existing head of Thomas Cook – who will take responsibility for group marketing and management of the businesses – and Peter McHugh, the current chief executive of MyTravel, who plans to retire at the end of this year. Fontenla-Novoa says his "immediate priority" will be to develop the independent travel, online and financial services segments of the combined business.

The travel market, which has suffered a downturn driven by the surge in online travel bookings and the boom of low-cost airline travel, has been going through a prolonged period of consolidation. Pope adds: "The industry as a whole is facing lots of competition from low-cost carriers in mainland Europe so it is natural for them to be looking to cut costs."

Surprise deal
While the industry has broadly welcomed the merger, it has come as a surprise to many following months of speculation about a deal between MyTravel and rival First Choice Holidays over the potential sale of its mainstream package business. First Choice has terminated talks over the sale of its mainstream package business, valued at about £500m, in the wake of the merger announcement after its two remaining bidders dropped out.

Analysts have queried the timing of the deal, with the ownership structure of Thomas Cook not yet clarified. The proposed merger depends on the completion of KarstadtQuelle’s deal to buy the half of Thomas Cook it does not already own from Deutsche Lufthansa for €800m (£528m). "There are all the contingencies associated with that deal to be worked out," Cook says.

The merger marks an impressive turnaround for MyTravel, which just over two years ago was struggling under debts of over £1bn with a market value of £30m. Last year, under the guidance of American McHugh, the company returned to profit for the first time since 2001 after cutting costs across the business.

While the deal has been largely welcomed by the travel industry, it might not be such good news for the companies’ marketing departments. But as competition in the sector increases, it seems certain that this merger will not be the last.