The oldest travel company in the world, the Thomas Cook Group (TCG), is looking to sell its profitable airline business in an attempt to raise some much-needed cash. The announcement comes as the company has been plagued by a poor 2018 performance and a difficult financial forecast.
TCG will hope that selling their airline will allow them to reinvest in other areas of their business.
A Tough Year
TCG’s share price in May 2018 was at a yearly high of 146.1p. However, due to a persistent heatwave over Europe, customers were reluctant to book lucrative last-minute holiday deals. As a consequence, two profit warnings were issued in the second half of 2018 and TCG’s share price tumbled to a yearly low of 22.7 in December. When the announcement regarding selling the airline was made, the share price rose by 12% to 32.1 at midday on 7th February.
The travel company owns the German airline Condor, which boasts 103 aircraft, £3.5 billion in revenue and £129 million in operating profits – the whole airline business has been valued at between £1.8 and £3.2 billion. TCG has adamantly tried to reassure investors that outright ownership of an airline business is not needed for successful operations.
Redistribution Of Company Assets
Deciding where to reinvest the generated cash will be the crux of TCG’s future. There have been hints that Thomas Cook seeks to grow its hotel assets, which are governed by Thomas Cook Hotel Investments (TCHI).
Two days ago, TCHI secured a €51 million (£45 million) investment from CaixaBank to build new hotels in the Mediterranean. Additionally, the travel company has announced the building of two new hotels in China, due to be completed in 2020.
However, there remains two crucial problems: firstly, investing in the Mediterranean and China real estate markets is risky, since both regions are vulnerable to market bubbles; and secondly, investing in hotel building doesn’t solve TCG’s problem of low customer numbers – coupling a marketing strategy with hotel investment is needed to open the purse strings of potential customers.