With the announcement that Harriet Green has stepped down as the CEO of holiday giant Thomas Cook (LSE: TCG), shares of the company plunged by up to 24 percent.
This suggests a sharp drop in investors’ confidence towards the future of the company, considering that Ms Green was the woman credited for its survival. However, does her departure translate to crisis for Thomas Cook?
Certainly not. Here’s why.
The rise of another effective CEO
As Ms Green stepped down as CEO, Peter Fankhauser immediately replaced her. While Ms Green is the person who oversaw the turnaround of Thomas Cook in general, Mr. Fankhauser has been highly instrumental to the entire process. Most notably, he oversaw the turnaround of the company’s UK business. His efforts in UK were in addition to overseeing the company’s Continental Europe segment, which also saw an improvement during his time.
Before we dig into the specifics of what he achieved while in charge of the UK business, let’s take a moment to examine just how important the UK business is to the company. In 2013, the UK segment brought in £2.977 billion in revenues, accounting for about 30.6 percent of total revenue. The only segment that brought in more revenue was the Continental Europe segment, which consists of more countries than the UK. That’s just to show you how important the segment that was entrusted to Mr. Fankhauser is to Thomas Cook.
Effective at meeting targets
Mr. Fankhauser took over as the CEO of the UK segment in 2012 and did well to achieve the following:
He saw to the improvement of the UK segment’s underlying EBIT margin. By the end of 2013, the margin here had risen by 210 basis points to 2.2 percent compared to 0.1 percent in 2012. Through this, he helped set a solid foundation towards achieving the company’s 2015 goal of an underlying EBIT margin greater than 5 percent in the UK segment.
To achieve the above, he helped simplify the UK business by reducing retail stores by 21 percent from 1,101 before the start of the transformation program, to 874 stores by the end of 2013. Since the internet is now crucial in the travel industry, under Mr. Fankhauser’s leadership, the UK segment’s web penetration increased to 36 percent, up from 33 percent in 2012. He also oversaw the reduction of UK brands from 27 to 10.
Mr. Fankhauser also saw to it that year-on-year cost savings of £64 million was delivered, coupled with further savings of about £35 million.
When you consider that, according to the company, Mr. Fankhauser spent 80 percent of his time in charge of the UK and Continental Europe, then you’ll understand that he actually played a vital role in achieving the results discussed above.
So, with his success when in charge of the UK business, I believe that Thomas Cook is in the hands of someone who will carry on from where Ms Green left things.
Foolish takeaway
However, while I believe that Mr. Fankhauser has the ability to drive the company forward, I would say that investors should be a little cautious about this company for now. At the very least, investors should wait until trading updates for the current year come out of the company.
I say that in the light of revelations that Ms Green recently said to Management Today‘s ‘Inspiring Women’ conference that the turnaround was not yet complete. So for her to say her ‘job is done’ when stepping down does raise some questions about events going on inside the company.
