BA sale

Virgin Atlantic bidding for Thomas Cook’s long-haul business – but does it make sense?

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Sky News reported last night that Virgin Atlantic has bid for Thomas Cook’s long-haul operation.

This is, primarily, a Manchester-based business although Cook also flies long-haul from Gatwick and, in Summer, Glasgow.

Virgin Atlantic and Thomas Cook have been fighting for control of the Manchester long-haul market for years.  Past discussions I have had with industry insiders implied that the market was not big enough for both of them.

As with the acquisition of Flybe, this may be a partially defensive move by Virgin Atlantic.  By taking control of the bulk of the Manchester long-haul market – at a point when the airport is finally emerging from its major expansion programme – it can gain more control over capacity and pricing.

I’m sure Virgin would be even happier if Thomas Cook closed down its Manchester long-haul operation instead.  That is very unlikely to happen, and the downsides of another long-haul carrier buying it – especially a dedicated low-cost operator – are substantial.  Acquiring the business may be the least worst option.

Thomas Cook is also inviting single bids for its entire airline operation but Lufthansa has emerged as a strong bidder for the German charter arm Condor.  This would potentially allow the UK business to be sold separately.

Virgin Atlantic to buy Thomas cook airlines

What is up for sale at Thomas Cook?

You are looking at four separate airline operations:

  • Condor
  • Thomas Cook UK
  • Thomas Cook Scandinavia
  • Thomas Cook Balearics

There is a total fleet of over 100 aircraft carrying 20 million passengers per year.  The snag for any buyer is that only 38% of seats are sold as ‘seat only’ – the rest is sold via tour operators, primarily Thomas Cook itself.

Travel Weekly stated recently that Thomas Cook has 200 weekly slots at Gatwick and 350 weekly slots at Manchester.  There is value here, but it is dwarfed by Condor which has 400 weekly slots at Frankfurt alone.

Virgin Atlantic bids for Thomas Cook Airlines

What is the Thomas Cook UK fleet size?

This is where it gets complicated.

According to the Thomas Cook website here, the UK operation has 33 aircraft.  This comprises:

  • 24 short-haul A321
  • 7 long-haul A330-200
  • 2 Boeing 757-200 (one-aisle but can be used long-haul)

Additional aircraft are leased to cover key seasonal peaks.  The CAA reports UK passenger numbers of 7.3 million in 2017, with a 90% load factor.

The key here is the 24 short-haul aircraft.  These operate from Belfast International, Birmingham, Bristol, Cardiff, East Midlands, Glasgow, London Gatwick, London Stansted, Manchester and Newcastle.

Where does the long-haul operation fly?

Over Summer 2019, Thomas Cook will operate the following routes:

  • Cancun – Glasgow, Gatwick, Manchester
  • Cayo Coco (Cuba) – Gatwick, Manchester
  • Holguin – Gatwick, Manchester
  • Las Vegas – Manchester
  • Los Angeles – Manchester
  • Montego Bay – Manchester
  • New York JFK – Manchester
  • Orlando – Glasgow, Gatwick, Manchester
  • Punta Cana – Manchester
  • San Francisco – Manchester
  • Seattle – Manchester
  • Varadero – Manchester

The Sky News report suggests that Virgin Atlantic is only interested in the long-haul routes.  This may well be right unless there is any substantial element of connecting traffic to the long-haul operation.

Virgin Atlantic has no short-haul operation at the moment if you exclude its investment in Flybe.  It is very unlikely that the A321 operation would sit well with Flybe, which is entirely based around smaller aircraft.

You could argue what value the long-haul operation has on its own.  Virgin could presumably, at modest cost, lease nine equivalent aircraft and gain equivalent slots at Gatwick and Manchester.  Would Thomas Cook be happy to keep putting its customers on Virgin Atlantic aircraft when Virgin is competing against it via Virgin Holidays?

The deal obviously removes a competitor at Gatwick and Manchester, but what would stop Norwegian or someone similar starting its own Manchester operation on similar routes?

It will be a key call for new Virgin Atlantic CEO Shai Weiss who has only been in the job since January.  Is he willing to make such a substantial bet so soon?  More importantly, will his shareholders Delta and Air France KLM support him?  It will be interesting to watch this unfold.

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Comments

  1. Tariq says:

    Given the substantial market consolidation it would lead to at MAN, would CMA even allow it?

    The long haul business would definitely be compatible with VS leisure operation; I think there would be opportunities for short haul as well if they want to grow the Flybe ops. IMO Flybe desperately needs some fleet commonality with the rest of the business to protect against the kind of disruption that we saw a month or so ago – moving some routes to e.g A319 could give that with the Thomas Cook A321 fleet?

    • Flybe can’t fill these aircraft. The number of people flying Exeter to Glasgow, or whatever, is limited. Most of their problems come from over-ambitious aircraft expansion.

    • Chris L says:

      Flybe has generally been focused on business travellers who require flexibility on timings. For example, they now run 7 flights a day from Birmingham to Edinburgh and 3 a day to Amsterdam. Clearly these routes have the volumes to fill an A320 or similar, but that would not provide business travellers with flights at the times they require. Hence, they’ve prioritised their Dash 8 aircraft.

      However, this has the potential to change if Virgin start to use Flybe as more of a long-haul feeder airline. There could be scope for them to serve more European cities into Manchester for onward long haul travel to North America and the like. The priority in this situation would be to time the flights for easy connection to long-haul departures. This activity could warrant larger aircraft.

  2. Genghis says:

    Small typo, “least nine equivalent aircraft” = lease..

  3. Simon says:

    Is there value in the route authorities into the US? I know these are easier to come by these days but presumably there’s still some regulatory cost involved in obtaining them?

  4. Shoestring says:

    TC maintains that the airline is pretty profitable – which it no doubt is on paper, with flexible internal pricing and TC holidays filling up over 60% of seats. Any airline buyer will be wondering what they would do if TC took its business elsewhere – perhaps going for the lowest cost provider or getting several flight providers to tender for chunks of seats on key routes during the holiday season. Ie how sticky is the TC holiday business on a spun-off airline? Whilst there can be initial contracts guaranteeing TC will fill x% of the seats @y price for z years, these contracts will always be time-limited and give TC some flexibility. Flexibility to go elsewhere or ratchet down the price.

    I’d say instinctively that most of the routes – perhaps less so for Condor – will be so reliant on TC as to be unattractive when looked at dispassionately (ie what if TC disappears?) Of course there’s a value there – but TC airline has been up for sale unofficially for 2 years now and nobody has exactly been keen so far. The value is aircraft (somewhat ageing), slots (good) and a profitable airline business (yes but not as profitable when owned by AN Other). And the EC might finally side with the German consumer and stop Lufthansa buying the best bit, Condor.

    Not even £600m for the lot.

  5. That Norwegian or anybody else has not entered the market tells us everything we need to know.

  6. Mr Entitled says:

    Not sure I follow the point that TC with 350 weekly slots at Manchester is dwarfed by Condor because it has 400 weekly slots at Frankfurt.

    Frankfurt is a much bigger airport with 4,900 slots a week vs 1,750 at Manchester and the largest Cargo operation in Europe and yet Condor only has about 50 more slots.

  7. Roger*connecting with Condor. says:

    Other long haul, I was wondering about TC to Cape Town.

    I see it returns for the European winter from December using an A330 from LGW. Checking for Jan 2020, looks like 3x weekly.

  8. Roger* says:

    Er, Condor had no business claiming to be me! Oops.

  9. Nigel the pensioner says:

    “The deal obviously removes a competitor at Gatwick and Manchester, but what would stop Norwegian or someone similar starting its own Manchester operation on similar routes?”

    Available slots? You get the edge by providing a superior service at a price which your Customers find reasonable. Loyalty follows. To buy out competition who are playing the game at a different (lower) level doesn’t make financial sense. If you then up prices, you lose a significant portion of your new Customer base. If you lower prices (!!) you lose your original followers as expected standards fall. BA as a perceived national airline have the edge in the uk for knee jerk reasons ie the bottom line is we are all from the uk. Clearly this is not true these days but it gives a bottom line sense of security. However BA have found that you can go below the lowest acceptable standard on several occasions and they have had to bring back services previously dropped.
    Much better to leave markets alone. Only a third of sales are seats only on TC so it leaves two thirds for TC holidays vs Virgin holidays. Not going to work.

    • Manchester is not ‘full’ (Gatwick is tighter) although admittedly that doesn’t mean much in itself because you need slots at certain times of day – most US inbound flights land early morning for example – to make it work. Gate availability may be a bigger squeeze at Manchester until the extension is finished.

  10. My thoughts are Virgin will buy the linghaul part and Easyjet the short-haul to get the Gatwick slots which have decent value as evidenced by what BA paid for the Monach slots.
    Could be a joint bid or Virgin buy the lit and then sell seperately.

  11. Telecasterman says:

    What about Thomas Cook Engineering at MAN ? Is that for sale? Would be a good fit for Virgin A330.

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