Thomas Cook and Co-op set off on their own romantic getaway

The two companies have agreed a merger - and it looks like customers are set to benefit. Just in the nick of time for Thomas Cook.

by Emma Haslett
Last Updated: 21 Nov 2011
Looks like British holidaymakers are in for a treat: Thomas Cook and the travel arm of the Co-operative have agreed to merge their travel and foreign exchange shops. The deal will create the largest travel chain on the high street, as well as its second-largest foreign exchange provider meaning, said Thomas Cook CEO Manny Fontela-Novoa on this morning’s Today programme, that both chains will be able to offer a better rate to customers. It’s at least going to come as a relief to Thomas Cook shareholders, whose last few months could be described as less relaxing break, and more the holiday from hell…

The deal is structured as a non-cash merger, which means no money will change hands. Instead, the onus is on scale: the two companies reckon that with 1,200 stores, and a combined customer base of 4.3m – which equates to 20% of the market share – they’ll be able to make £35m of savings a year (which they can then pass on to us). Part of that will be achieved by combining headquarters, which will most likely be in Peterborough, and restructuring their IT systems and back-office functions. And while both sides are planning to keep their branding on the high street, about 70 of Thomas Cook’s ‘Going Places’ shops will become Co-operative Travel.

But it’s not all good news: the group has also warned that because of the savings it is expecting to make, redundancies are ‘inevitable’. Fontela-Novoa says it’s too early to start talking numbers, but there’s little doubt that substantial cuts will need to be made among the 9,000 staff in the combined group.

The deal, probably the last big consolidation opportunity in the travel business, is set against a background in which independent travel booked online has taken much of the traditional high-street market. The company issued its second profit warning in two months just over a week ago, saying profits are likely to be £10m lower than expected. While a controversial ad campaign featuring Jamie and Louise Redknapp did spark a momentary reversal in its fortunes back in February, with ash clouds, strikes and engine troubles, this year has indeed been challenging. In fact, Fontela-Novoa, who is set to become chairman of the new company, said it has been the ‘worst’ year he has experienced during his 38 years in the travel industry – worse, even, than the months following the 9/11 terrorist attacks.

Now that Thomas Cook may have found a way out of its troubles, the onus will be on competitor Tui Travel, which has also been struggling, to figure out a way to sort out its own finances. According to Langton Capital’s Mark Brumby, it ‘will come under at least a little pressure to come up with something innovative itself.’ Let’s just hope the Redknapps aren’t involved in this one…

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