Thomas Cook may outsource non-core ops

Almost a year after its acquisition by Toronto-based Fairfax Holdings, Thomas Cook India is considering to outsource some of its non-core backend operations including accounting and other financial processes. Madhavan Menon, managing director, Thomas Cook India, told Business Standard this was part of the company’s strategy to increase the overall productivity of its work force and processes.

Also, the company plans to ramp up its investment in technology to upgrade its systems, something it was very restricted to do earlier.

Currently, the company is enjoying a free hand from building long term strategies to its day to day operations, with its majority stakeholder controlling only two areas – capital expenditure and acquisitions.

“Prem Watsa (founder chairman and CEO of Fairfax) believes that the management of a company has the domain knowledge and the capability of running the business on its own. After all they are not experts in travel, but they are basically investors who know how to value investment and assist managers in building value from the shareholder perspective,” Menon said.

And that is exactly what the company has done with its last acquisition of human resources firm Ikya: added shareholder value. As more acquisition opportunities arise, the possibility of getting new investors is not ruled out. “Every time we go out and make an acquisition we can’t make it by debt. We have to bring in equity,” Menon added.

However, he also made it clear that the company has no intentions of acquiring any company in the travel industry. Recalling its earlier acquisition of firms like LKP forex, Menon said it is hard to find an equivalent acquisition today. He added, “Why we would not buy is purely because if you look at the retail business the focus is on product. The customer is not sticking with a business.”

It is this cue, that has led Thomas Cook India to ramp up its domestic holiday packages from 60 to 360 packages in the last two years. While the company does not deny being a late entrant in the domestic travel segment, it has pegged the business to be the fastest growing segment for the company in the next two years.

Presently, the ratio of its foreign exchange and travel business continues to be 60:40 with leisure growing at a faster rate than the financial services.

While according to the original agreement with its London based parent company, Thomas Cook India can “milk the brand” for another twelve years, the thought of an early brand phase out is lurking in Menon’s mind. “We have time to do that. By year three or four (2016-17), we would have started very seriously thinking what the roadmap would be. We are now getting activated as to how it should be built,” he said.

Meanwhile, the company is trying to assert its independent identity in its stores by highlighting its “Thomascook.in” status and its own tagline, travel smooth.

What remains of concern, however, are the macro factors like the economic slowdown and the rupee depreciation. “Both these events have not shown immediate impact but going forward we will see some impact. It is a constant red flag that keeps staring at you in the face,” Menon said.