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Thomas Cook’s Swiss boss, Peter Fankhauser, has one of the more distinctive accents in British business. But, on Wednesday, his problem was sounding too much like an Englishman: Andrew Swaffield, boss of collapsed airline Monarch.
When Mr Fankhauser said his travel group had experienced “soft demand for Turkey”, faced “abnormal” demand for Spain, and seen “margin pressures”, the market heard echoes of Mr Swaffield blaming a “decimation of Turkey” that “especially affected Spain” and saw Monarch’s “yields collapse”.
But can a £1.7bn international tour operator making £330m of operating profit really be compared to an insolvent European airline? Yes and no.
Thomas Cook’s margin troubles did appear similar to Monarch’s — just much less critical. Holiday bookings to Turkey and Egypt have been hit by security fears and, although Thomas Cook can rebuild its business, recovery is slow. Additional Turkey bookings contributed only £103m to group revenue of £9bn.
Meanwhile, with every travel group’s customers now preferring the safety of Spain, Thomas Cook has been forced to keep its prices competitive as hoteliers hike theirs. Sterling weakness has only exacerbated the problem for a company that pays in euros but takes money in pounds. Hence a 130 basis point drop in the company’s gross margin to 22.1 per cent, and a warning that Spanish holiday prices will be 10 per cent higher for Brits next year.
It wasn’t simply that Mr Fankhauser sounded like Mr Swaffield of Monarch, though. It was perhaps also that he didn’t sound enough like Friedrich Joussen, his German rival at Tui.
In Tui’s third-quarter update, Mr Joussen said his UK customers were “getting used to higher prices” in Spain — suggesting greater success in passing on cost inflation, and more resilient margins. He had previously cited a strong performance in Spain from Tui’s higher-margin own-brand hotels.
However, Thomas Cook differs from Monarch, and is more like Tui, in three important ways: improved financing, investment and diversification.
A new £875m credit facility, following a €750m bond refinancing, will provide further liquidity on better terms — and a higher credit rating.
A joint venture investment platform will fund more own-brand hotels, and cut reliance on lower margin hoteliers.
And a return to growth in the Middle East will help cut reliance on Spain from 42 per cent of revenue to 30 per cent by 2019. In fact, Mr Fankhauser might best express his short-term hope using English words in an unusual order: a Christmas vote for Turkey.
Did I say buy? I mean sell
Jock Fly, a silver-haired market maker takes pity on a junior recently summoned by the bank’s head of trading, as imagined by Kate Burgess.
Fly: “What’s the problem, son?
Junior (glumly): “I’ve been told to flatten my position in Esoteric stock.”
Fly: “Have you tried to sell it? Have you been best offer?”
Junior: “Yup. No takers.”
Fly: “Well, my boy, I reckon it’s time to test the market, generate a bit of interest. Bonus pool looking a little light. Christmas coming and all that.”
Junior: “How does that work?”
Fly: “We’ll go on the bid. Offer to buy the stock at the best price, and maybe a bit higher. Keep it small, mind you. Bid for the minimum size. If a seller hits us, it won’t cost much. And it’ll tease the price up. Just make sure you don’t go outside the bid-offer spread. We don’t want to cause any ripples. We just need to inject liquidity into the market.”
Junior: “What then?”
Fly: “We’ll pull the bid as soon as the others follow, and hit them. Quick as you like. Job done. Happy Christmas.”
Junior: “Is that legal?”
Fly: “Son, I didn’t hear that. Look, we are not doing it for the money. We just need to level the books. That’s what you’ve been told to do.”
Junior: “Have you seen what happened to that trader at BofA? The Financial Conduct Authority says he misled the market by pretending to be a buyer when he was a seller, knowing that the algos would follow him automatically. The FCA said it was market abuse and fined him £60,000.”
Fly: “Did he make any money PA?”
Junior: “No, not on his personal account. And almost nothing for the book. But someone complained he was moving the market on no size.”
Fly: “And I thought market makers were supposed to supply liquidity. Time I retired!”
Royal Bank of Scotland’s private shareholders are not the only ones hoping the price recovers beyond 274p. On Wednesday, the government said it would resume selling its stake within 16 months. But the prime minister will hardly want to look less savvy than the chancellor she sacked: George Osborne first sold at 330p. One suspects the newspaper he edits may point that out.