Bloomberg News

Thomas Cook Risks Customer Exodus After 75% Stock Slump

November 23, 2011

(Updates with Lloyds stake in fourth paragraph, closing share price in fifth paragraph.)

Nov. 23 (Bloomberg) -- Thomas Cook Group Plc says it’s “business as usual” as the U.K. travel company tries to secure financing from lenders. Customers might not wait that long.

“I wouldn’t book with them now,” said Terry Harrison while browsing for airfares outside an office of Europe’s second-largest tour operator in London’s financial district. “If they keep going like this, they might go out.” The 56- year-old facilities worker for a private wealth-management company said he last booked a trip to Mallorca with the company about two years ago.

A 75 percent plunge in Thomas Cook’s shares yesterday may deter customers from booking with the 170-year-old travel company, exacerbating a decline in demand over the winter, analysts said. The London-based company said yesterday it’s back in talks with banks a month after revising loan terms. Thomas Cook is now worth 97 million pounds ($150 million), or 1.1 percent of its annual revenue of 8.9 billion pounds.

A 17-bank lending group, led by Bayerische Landesbank and UniCredit SpA, relaxed conditions on 1.05 billion pounds of existing loans last month. Lloyd’s Banking Group Plc, previously the biggest equity holder with an 8.96 percent stake, said in a statement today it cut the stake to 4.67 percent yesterday. The travel company said it expects to conclude talks with lenders in less than six weeks and is confident they will be supportive.

Railway Tours

Thomas Cook rose 9 percent to 11.12 pence in London trading today. The stock has dropped 94 percent this year, wiping more than 1.5 billion pounds off the company’s market value. Chief Executive Officer Manny Fontenla-Novoa stepped down in August after cutting profit guidance three times in a year and the company appointed Sam Weihagen as interim CEO.

“You have to question whether the man on the street will want to book a holiday with Thomas Cook with the share price collapsing,” said Wyn Ellis, an analyst at Numis Securities. “Their suppliers and hotels are going to be worried about Thomas Cook’s credit situation. That may give competitors a chance to snap up some of its better quality assets.”

Thomas Cook, which traces its history to English railway journeys in 1841, was formed by the 2007 merger of German retailer KarstadtQuelle AG’s Thomas Cook and MyTravel Group Plc. It generated an estimated 9.2 billion pounds of sales in the year ended Sept. 30, according to 17 analysts surveyed by Bloomberg, through 30,000 employees, 3,400 retail outlets and 22 million customers.

Government Report

“I don’t think this is the end, but the company could look very different in a year’s time,” said Ellis, who cut Thomas Cook to “reduce” from “hold.” “At these levels, the company could be of interest to private equity. Or the banks could seek a debt-for-equity swap.”

U.K. Prime Minister David Cameron said he asked the Department for Business, Innovation and Skills to provide him with a report on Thomas Cook, which he described as “an iconic and important British business.”

“It’s important to make sure this business is in a good and healthy state,” Cameron told lawmakers in the House of Commons in London today.

Thomas Cook abandoned a 400 million-pound rights offering in recent days that would have been announced together with the company’s annual results on Nov. 24, Sky News said late yesterday. The travel company yesterday delayed its earnings announcement until after concluding talks with lenders.

Rights Offer

Credit Suisse and Nomura were asked to prepare the 400 million-pound rights issue, Sky reported, without saying where it obtained the information. Lenders to Thomas Cook have hired Ernst & Young to advise on negotiations, Sky said today.

The European sovereign-debt crisis, political unrest in North Africa and flooding in Thailand have depressed demand for holidays, with bookings in France and Belgium falling about 20 percent this year compared with 2010, Thomas Cook said.

“Credibility with the market, lenders and customers is likely to have been severely damaged,” Nick Batram, an analyst at KBC Peel Hunt in London, wrote in a note to investors yesterday. He cut his recommendation to “sell” from “hold” and said the shares may fall to a penny.

Thomas Cook hasn’t adapted to difficult market conditions as well as larger rival Tui Travel Plc, Numis’s Ellis said. Tui’s variety gives it flexibility and accommodation-only bookings help spread its exposure, Chief Executive Officer Peter Long said by e-mail Sept. 2.

Tui has more than 200 brands, compared with about 30 at Thomas Cook. Tui shares rose 13 percent today, the biggest gain in three years.

“In the Internet era, where consumers purchase many tourism products directly, tour operators have been under enormous pressure to redefine what they do and justify the value of their contribution,” said Dimitrios Buhalis, a professor of tourism and marketing at Bournemouth University.

--With assistance from Thomas Penny in London. Editors: Sara Marley, Paul Jarvis

To contact the reporters on this story: Armorel Kenna in Milan at akenna@bloomberg.net; David Altaner in London at daltaner@bloomberg.net

To contact the editor responsible for this story: Sara Marley at smarley1@bloomberg.net


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