Thomas Cook goes solo in Europe

Thomas Cook has decided to sign up contracts directly with suppliers in Europe

Destination management companies, or DMCs, are an important part of the travel industry’s ecosystem. They arrange accommodation, ground transport and guides for inbound travel groups for a fee. Tour operators rely on them thanks to their expertise in that destination and because of convenience to deal with a single agent.

However, Thomas Cook has decided to negotiate and sign up contracts directly with suppliers such as hotels or car rental companies in Europe, bypassing the DMCs. This is arguably the first such initiative by an Indian travel company.

According to a senior company executive, this initiative will give Thomas Cook an edge, enabling it to offer competitive rates. “Tour costs have gone up because of appreciation of Euro and increase in airfares. We are able to keep tour prices lower than competition for tours of similar category,” said the executive.

The foreign exchange business contributes 60 per cent of Thomas Cook’s revenue; the rest comes from travel. Within the travel segment, outbound leisure, meeting incentive tours and corporate business make for 80 per cent of revenue; the rest comes from inbound business.

In 2012 (Thomas Cook  follows January-December financial calendar), revenue from leisure outbound and corporate travel increased by 35 per cent and 20 per cent, respectively. The company’s net profit rose 69 per cent to Rs 8.57 crore in the fourth quarter of 2012 over the same period in 2011.

Also, Europe is an important market for Indian tour operators. During the peak of summer, Thomas Cook usually has 80-100 simultaneous group tours. The company relies on DMCs in other markets, but it is keen to replicate this model.

According to Madhav Pai, director, leisure travel (outbound), Thomas Cook, the key advantages of direct contracting from suppliers include improved margins and, hence, productivity.

“Having test-run this concept last year with the rather-complicated geography of Europe, with its complexity of multiple countries, currencies, work cultures, other tours should be far easier,” said Pai in an email response.

Other tour operators such as Cox & Kings do not see Thomas Cook’s initiative as unique. “Our business model has always been to negotiate the best deals for the company if that means going directly to the supplier or working with DMCs in specific markets. Our objective has always been on saving costs, thereby giving that benefit to the customer. There is nothing new in this practice and it is a time-tested formula,” said Karan Anand, head (relationships), Cox & Kings Ltd.