UPDATE 2-Travel firm Thomas Cook targets $500 mln profit boost

Wed Mar 13, 2013 7:17am EDT

* Sees $521 mln profit improvement by 2015 due to cost cuts

* Targets sales growth of at least 3.5 pct/yr by 2015

* Targets UK EBIT margin of more than 5 pct by 2015

* Shares up 15 pct, hit highest in 19 months (Adds CEO, analyst comment, further detail)

By Rhys Jones

LONDON, March 13 (Reuters) - Travel firm Thomas Cook aims to boost profits by more than $500 million in the next three years by moving more of its operations online and further cutting costs, it said on Wednesday.

A long-awaited strategy update from Chief Executive Harriet Green gave the latest positive signal that the company is responding to radical changes in its industry and sent its shares up more than 15 percent to their highest in 19 months.

The 172-year-old group has struggled over the last two years with a slump in sales that has forced it to renegotiate bank loans and sell off planes and retail outlets to lighten its debt load.

Since travel industry outsider Green took over as CEO last summer, she has identified 160 million pounds of cost savings through measures such as merging its airline businesses. She said she had earmarked a further 50 million pounds of cost cuts.

With previous management having announced savings of 140 million pounds in 2011, that takes taking total annual savings to 350 million pounds ($521 million) by the end of 2015.

Green is targeting sales growth of at least 3.5 percent a year by 2015 as part of the plan, under which the world's oldest tour operator will simplify its business and place a greater emphasis on selling holidays online.

"We need to move from turnaround to transformation now and create a simplified, restructured business, which translates our strengths into profitable growth," Green told reporters.

Thomas Cook last week announced plans to cut 2,500 UK jobs and close 195 stores in Britain as it seeks to restore its UK business to health.

The company said it would also make disposals to raise up to 150 million pounds, with analysts expecting it to sell luxury travel agent Elegant Resorts, long-haul specialist Gold Medal and ski firm Neilson.

NEW PRODUCTS

Thomas Cook is targeting new product revenue of some 500 million pounds by 2015, with around half of sales coming from online transactions. This should lift its UK earnings margin to at least 5 percent by 2015, from zero, the company said.

Thomas Cook, a quarter of whose 2012 sales are already made online, will focus on driving more web sales to help it catch rival TUI Travel, which last year made a third of its sales via the web.

To do this, Green has created a digital advisory board, involving independent experts, to help it ramp up its online offering. It also plans to reduce its online brands to three in the UK and one in Germany, improve the performance of its websites and extend products offered online.

It also plans to increase its annual investment in technology by 9 percent to 60 million pounds.

The group will also boost its presence in the concept hotels, city break and winter sun markets over the next five years, while seeking better terms from hotel partners.

"Plans to focus the product offer and hotel inventory is important as we believe Thomas Cook's past inability to sell the right product through the most efficient channel to the right customer at the right price has harmed profitability," said analyst Ian Rennardson at brokerage Jefferies.

Shares in Thomas Cook, which have more than doubled in value over the last three months, were up 15.5 percent at 100.5p by 1015 GMT, valuing the company at around 875 million pounds.

The stock rose as high as 1004p, its highest since July 2011 when it had plummeted after the company warned earnings would fall short of market expectations.

Thomas Cook last month reported reduced first-quarter operating losses and said recent trade had been robust with summer bookings going well.

The company has lately been boosted by a rise in fixed-price holiday bookings as cash-strapped Europeans opt for risk-free deals in a volatile economic climate.

($1 = 0.6718 British pounds) (Editing by John Stonestreet and David Holmes)

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