18 February, 2019

Who will buy Thomas Cook's airlines?

Photo Thomas Cook
Speculation is rife in the European aviation industry over who is going to buy troubled Thomas Cook Airlines after the holiday group effectively put the carrier up for sale.

Thomas Cook Group hinted that a sale is on the cards in a recent announcement that a review into all operations was underway.   The company promised the review "which will consider all options to enhance value to shareholders and intensify our strategic focus".  It also stated "Our strategy for the airline has been to profitably grow as a leading European leisure airline with a reliable, customer-focused service. This has involved a continuous review of our cost structure in order to stay competitive in a highly fragmented market."

In total, the group operates a fleet of over 100 aircraft, spread around the four main airlines, Thomas Cook Airlines in the UK, Thomas Cook Airlines Scandinavia, Thomas Cook Balearics and Germany based Condor.

Photo Thomas Cook Group
Thomas Cook Group CEO Peter Fankhauser believes the airline business is in good shape, "Our group airline continues to have a good performance led by a particularly good performance by Condor in Germany. -Our group airline is a great business, one of Europe’s leading leisure airlines, carrying 20 million passengers to 120 destinations."

Thomas Cook is no stranger to rumours about a possible pending sale, indeed there was much media speculation in July an August last year that preliminary sales talks were ongoing, although these were flatly denied by the carrier at the time.  However, this time it is different, with Fankhauser confirming, "We have a healthy business which we feel is in a good position to review. It is right we consider what options we have to go faster on our core strategy." He stressed the airlines were in good order and  We have grown revenue and profits with our airline. We have an excellent position at our airports."

As the Thomas Cook Group airlines were set up primarily to provide seat capacity for the firm's package holiday businesses any sale deal would have to include concrete provisions for all the tour operation divisions. "The airline is built on the strong relationship of the tour operator and airline and that is going to stay in whatever scenario," said Fankhauser. It's understood that around 45% of the airlines business comes from Thomas Cook tour operators.

A sale of the airlines is seen as a logical move for Fankhauser, "We always said we don’t need to own an airline. We have a great business, but as a holiday company, we don’t need to own an airline as long as we have a strong commercial relationship with the airline."

But who will buy the airlines, either singularly or as a whole? That's the big question, with no clear answer and no airline has yet expressed an interest, at least not publically in a buyout or joint venture.  With the demise of Germania in the last week or so, Condor becomes an even more valuable asset, especially with highly-prized and highly-priced slots (more than 700 at last count) at key German airports.  

The UK operation also has valuable slots at both Gatwick and Manchester which would be attractive to a large airline with a presence already at those airports, yet such assets also make the airline more expensive.  However, as a single entity, with 29 Airbus A330, A321 and A320 aircraft, most under twenty years old, would it have many suitors. Virgin Atlantic cant come to the rescue, its hands and financial coffers are tied up with the joint venture to take over flybe. 

Photo Ryanair
Ryanair is a possibility, there were rumours in the last couple of years that the Irish low-fare-high-fee carrier was one of those talking to Thomas Cook about a takeover, but with recent losses, it looks less lightly. Plus, Ryanair has recently closed its package tour operation, so has little need for a holiday charter airline and of course the  TC Airbus fleet wouldn't sit well with Ryanair's Boeing 737's.  Although, its loss-making Lauda operation has Airbus aircraft...yet it doesn't seem a plausible option.

easyJet have no need for, nor expressed any interest in purchasing the carrier, they seem more driven to expand organically and extend reach with the Worldwide by easyJet programme at least in the UK. Outside these shores, the budget firm is involved in a rescue consortium deal for Italian airline Alitalia. 

British Airways and parent company IAG has been mentioned, especially since it has abandoned a potential Norwegian takeover, but it has little need of the Gatwick slots, the TC aircraft are not the most up to date of craft, therefore not really of much interest to the UK's flag carrier.

Wizz,  the Hungarian based budget carrier has a good presence in the UK and would love the slots, especially those at London Gatwick, perhaps less so at Manchester. Buying TC could help its expansion plans, yet would Indigo Partners want to buy the whole of TC just for the slots?

Air France - KLM previously the group had wanted to expand into Germany and Scandinavia, however, under the stewardship of Ben Smith, it seems to be entering a period of consolidation. The new CEO has indicated the retirement of five A380's, it's millennial start-up Joon has already been given the chop and next on the block is Hop!

Norwegian, the popular airline with many low-cost long-haul routes neither has the money or inclination to purchase another carrier of any size. The TC route network would have complimented Norwegian's reach in most places, with one or two overlaps, but with nothing left in the bank Norwegian can be ruled out.

SAS Scandinavian Airlines, not at the forefront of most peoples attention when it comes to a take-over, however, the firm has, we're told, been looking over the operations of Thomas Cook Scandinavia, which is based in Copenhagen. The 13 Airbus aircraft that Thomas Cook Scandinavia currently operates would be able to slot almost seamlessly into the SAS Airbus fleet.  Yet, SAS put in an order for 50 Airbus A320neo aircraft last year and is also waiting on delivery for 8 A350's to replace the expensive four-engined A340's it still has in flying operations, so it really doesn't need more!

Whoever buys the Thomas Cook's airlines, either in part or as a whole will have to pay a significant price will go some way to reduce the Thomas Cook Group's net debt, which at the end of last year stood at 1,588 million.