Less than two months after the collapse of Thomas Cook, with the suggestion that old-fashioned package holidays had gone out of fashion, budget carrier easyJet has stepped in and decided there’s an opportunity to be had after all. It’s launching a new package holiday business before the end of the year.
And it’s not the only one with designs on building its profits on the back of Thomas Cook’s demise. Online travel company On The Beach Group (OTB) has said it has already increased its investment in marketing to capitalise on the liquidation of the world’s oldest tour operator.
It said its rival's woes had created an ”unprecedented opportunity to take additional market share at an increased rate”.
That’s not to say that Thomas Cook’s collapse has been a total win for On the Beach. It has already revealed that it expects to take a one-off charge in the current financial year, because of the costs of helping stranded customers get home and the knock-on effect of future cancelled bookings.
However, it said it expected to be able to recover the costs of the cancelled flights via a chargeback claim, as it did following the collapse of Monarch Airlines in 2017.
About 15% of On The Beach’s customers had typically been booked on Thomas Cook’s flights every year. The demand of seats on planes for those 225,000 passengers will now most likely force flight prices up. When Monarch went bust it cost On The Beach about £1 million of profits. Its exposure to Thomas Cook is twice that, so analysts estimate that the company could be looking at an exceptional charge of up to £7 million in 2019 to cover lost profits from rebooking tickets or returning customers’ money.
These are already decidedly difficult times for consumer-focused businesses and none more so than discretionary travel-related ones that rely on us being prepared to fork out for foreign travel.
The collapse of an industry giant is bound to put off some holidaymakers who are likely to defer their plans until they feel confident that the company they’re booking with isn’t going to go the same way as Thomas Cook.
On The Beach says it won’t go the way of Thomas Cook though because it builds packages based on where customers want to go, rather than pre-paying for flights and hotel rooms in destinations that don’t turn out to be the ’go to’ choice. It also doesn’t have any costs relating to shops or hotels, as it doesn’t own any.
In 2009, during the financial crisis, the number of sun-seeking holidaymakers fell from about 14 million to 10 million a year and dozens of smaller travel agents collapsed.
On the plus-side today, those still standing, such as On The Beach and easyJet , now have the opportunity to meet the needs of the 2 million package holiday customers who would typically go to Thomas Cook every year.
Broker Berenberg reckons On The Beach could sell an extra half a million trips a year and forecasts operating profits in 2021 will rise above £47 million. That’s some way higher than the £35 million it has pencilled in for this year or the £41 million for next year.
The shares are currently trading around 436p.
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