Peter Rothwell has wasted no time getting his hands dirty since taking on the role of group chief executive at Kuoni at the start of this year.
Just under a month into the job, Rothwell – known for having a cool head in business and not afraid to slash costs where necessary – was announcing details of the group’s three-year £63 million ‘transformation’ programme.
This includes job cuts as part of a bid to reduce costs by 5% a year, as well as plans to create a common inventory and reservation system across the group’s tour operating brands, and developing the web. “Cost cutting is a way of life, sadly. But it does drive efficiencies,” says Rothwell.
At a time when travel businesses are battling against the effects of the recession, the former TUI Travel deputy chief executive is not expecting 2009 to be a record year. But he is far from downcast.
He says: “A lot of it is about looking after the cost base and cutting out cash drains and wastage. But the company is very well founded; we have no net debt. We are cash positive and have a strong balance sheet. All the indications are that we will make a profit this year.”
The bullish outlook is in part based on the fact the business has no fixed assets and flexible capacity, while negotiations with suppliers have also helped to reduce costs.
Kuoni’s UK business, which is taking the brunt of the impact of the recession, accounts for less than a fifth of group profits. “From a turnover and margin point of view the UK is still an important part of the business. But there was a time when it represented 100% of the profits,” he adds.
In addition to the UK, the group sells travel out of France, Switzerland, and Scandinavia, while it operates inbound business to Europe from Japan and China. It also has a visa facilitation business, but one of the biggest parts of the group is its destination management business in India and Asia.
The combination means the group should, in theory, be more resilient than UK-only businesses, which are suffering the doubly whammy of the global recession and weak pound.
Rothwell says the group planned for dire circumstances in which sales were 20% down. Now he thinks this bleak assessment is unlikely. He adds: “The UK has gone through some pain. In local currency terms we are running 13% down for 2009, but late sales are significantly up.
“We can assume that 13% will come back, but it will not be a record year. Our planning scenario is stretched down to minus 20% but I don’t think that will happen.”
He credits the relatively new UK management team put in place since the departure of former managing director Sue Biggs in summer 2007 with turning round the UK business.
“The UK business has been under pressure for a number of years now but Nick Hughes [UK managing director] has got a new team, which has done a very good job in the difficult last nine months, in particular since the beginning of the banking crisis. From our point of view the UK has turned the corner.”
What has surprised Rothwell is the level of late sales that has resulted from the economic uncertainty.
Kuoni UK has traditionally netted the majority of its bookings in the early market through brochures. But the lack of consumer confidence has meant holidaymakers are leaving it later to book, forcing operators like Kuoni to rethink their business models.
Rothwell admits: “I was surprised by how late the market was [in terms of bookings]. The crisis we are going through teaches customers different behaviour. Everyone is looking for a deal. We need to provide them with the deals they are looking for.”
The result has been the creation of a late sales unit at Kuoni UK’s Dorking head office, tasked with putting together attractive late deals with a 24-hour turnaround. The operator is now seeing March bookings for April and May departures anywhere between 10% and 50% up each week compared with the previous year. “We think we are taking market share. We are being more proactive on ‘lates’ sales,” says Rothwell.
He believes the late booking trend, which has accelerated this year, could be permanent. He adds: “I don’t think it’s a business that will ever go away.”
With much of the ‘lates’ business helping to boost online sales, brochures will inevitably feel the pinch. “We don’t have any specific plans to launch brochures later but the reliance on brochures will soften. There will be other ways of generating business.”
Rothwell insists proactive UK travel agents remain important for the business but admits an increased in-house focus by the multiples has forced it to seek more direct business.
He says the tactics of his former company TUI Travel have forced the increased focus on direct sales in the UK.
He says: “To some extent we have to focus on direct sales. Thomas Cook and TUI have squeezed us from a distribution point of view quite hard over the past couple of years.
“I don’t blame them; they want to feed their own businesses and we have to find alternatives [distribution channels]. Our shops are replacing the TUI and Thomas Cook business and making a statement about Kuoni and what kind of company we are. We are not saying we want to push all our business through our in-house chains.”
Kuoni’s own shop network is likely to expand to 10 or 12 branches nationally. “It will be very small – nothing to frighten the travel trade.”
The operator will continue to work closely with independent agents that proactively sell its products, he adds. “We have not taken away business from independent agents. We are working with people who want to work with us.”
Around 16% of the group’s sales are online, but this is likely to increase this year, particularly in the UK, as a result of the late booking trend.
As a whole the group is behind the rest of the industry in terms of its online booking figures, Rothwell admits.
“We have not been at the forefront of online bookings; there is a bit of catching up to be done,” he says.
While the current climate has put a stop to many acquisitions, Kuoni remains on the trail. But Rothwell admits no purchases are planned until the end of the year or the start of 2010.
The recession is likely to provide opportunities, particularly in the UK. “We have looked at more than one business,” he reveals. “People see Kuoni as safe home. We are interested in asset light companies with strong business models. It should be a good time [to acquire], with some relatively low acquisition prices.”
The group will also look at growth by moving into new areas geographically. “We are looking at some new geographies and opportunities,” he says.