Northern Region
The Northern Region comprises the distribution and tour operating businesses in the source markets of UK and Ireland, the Nordic countries and Canada. Brands include Fritidsresor, the Nordic tour operator and retailer, First Choice and Thomson, the leading UK high street brands and Signature Vacations, the tour operator in Canada.
The Northern Region achieved a 16% improvement in underlying operating profit to £206m in 2009 (2008: £178m). The improvement was largely driven by incremental merger synergies of £64m and reduced scheduled flying losses in the UK, offset by weaker trading in Canada and Ireland, the weaker Winter programme for Thailand in the Nordics and the adverse impact of the swine flu outbreak in Mexico on the UK performance.
| £m | UK & Ireland | Nordics | Canada | Northern Region |
|---|---|---|---|---|
| 2008 | 133 | 49 | (5) | 178 |
| Scheduled flying losses | 9 | – | – | 9 |
| Sale and leaseback transaction | (5) | – | – | (5) |
| Swine flu | (9) | – | – | (9) |
| Trading | (10) | (3) | (19) | (33) |
| Acquisitions | 2 | – | – | 2 |
| Synergies | 64 | – | – | 64 |
| 2009 | 184 | 46 | (24) | 206 |
| Northern Region | 2009 | 2008 | Change % |
|---|---|---|---|
| Customers (’000) | |||
| UK & Ireland | 5,687 | 6,978 | -19% |
| Nordic | 1,177 | 1,313 | -10% |
| Canada | 240 | 279 | -14% |
| Total | 7,104 | 8,570 | -17% |
| Revenue (£m) | |||
| UK & Ireland | 3,257 | 3,433 | -5% |
| Nordic | 797 | 766 | +4% |
| Canada | 168 | 178 | -6% |
| Total | 4,222 | 4,377 | -4% |
| Underlying operating profit/(loss) (£m) | |||
| UK & Ireland | 184 | 133 | +38% |
| Nordic | 46 | 49 | -6% |
| Canada | (24) | (5) | n/a |
| Total | 206 | 178 | +16% |
| Underlying operating margin (%) | |||
| UK & Ireland | 5.6% | 3.9% | +170bps |
| Nordic | 5.8% | 6.4% | -60bps |
| Canada | (14.3)% | (2.8)% | -1,150bps |
| Total | 4.9% | 4.1% | +80bps |
UK & Ireland
UK & Ireland delivered a £51m improvement in underlying profits to £184m in 2009 (2008: £133m).
The UK delivered synergies of £93m in 2009, an increase of £64m over prior year synergies of £29m. Significant achievements during the year included the full integration of the Thomson and First Choice cabin crews and pilots from 1 May onwards, further consolidation of the core IT systems and infrastructure with Summer 2009 running off a single reservation system, and the successful integration of Island Cruises with Thomson Cruises.
During the year, the business eliminated a significant amount of loss-making scheduled flying capacity, which resulted in the reduction of £9m of scheduled flying losses from the previous financial year. Charter capacity reductions supported a stronger pricing environment in the lates market and input cost inflation was recovered through higher average selling prices.
The outbreak of swine flu in Mexico in April 2009 resulted in an adverse impact of £9m in the second half of 2009, due to repatriation and compensation costs, increased cancellations and lower load factors when the Mexico flying programme resumed in May.
The Irish business increased operating losses by £3m versus the prior year, due to a significant decrease in demand resulting from the weak economic environment. Customer volumes decreased by 23% in 2009, with a similar decrease in capacity. Additionally, all operators in the market reduced prices to secure volumes, and margins were eroded as a result. We have carried out a strategic review of the Irish business which will enable it to operate more profitably in this challenging market in the coming year, through measures including cost reductions and further capacity rationalisation.
Controlled distribution increased by three percentage points to 78% in 2009, as improved functionality on both the Thomson and First Choice websites drove greater online volumes. The recently launched ‘MyThomson’ is a personalised portal that allows customers to access bookings, pay balances and select seats.
The focus on delivering high-quality differentiated product and service continued in 2009. Thomson built on the highly successful 2008 launch of Sensatori in Crete with two more of these 5-star concept hotels: Sensatori Mexico (opened May 2009) and Sensatori Tenerife (opening May 2010). First Choice launched the hugely popular Splash brochure, with 13 Splash hotels each offering unlimited free access to an onsite waterpark. The First Choice Holiday Village portfolio also expanded, with an updated unit in Lanzarote and further openings (including Rhodes) are planned for 2010. The cruise programme also saw further expansion: Thomson Dream joined the fleet, to sail from April 2010, opening up new destinations in Cuba and Honduras. We now have a market leadership position in the 3 to 4-star cruise market in the Mediterranean.
Nordics
The Nordics business reported underlying operating profits of £46m (2008: £49m) and an operating margin of 5.8%. If we were to include profits earned from destination services, which includes transfers and excursions, and which are reported in our A&D Sector, the operating margin generated by the Nordics business would be c.7%.
The year-on-year decline in profit was primarily due to reduced demand for the main long haul destination of Thailand in Winter 2008/2009 following political upheaval in Bangkok. Winter 2008/2009 volumes to Thailand were lower and margins were further affected due to discounting in the lates market, leading to a £10m loss. However, there was a good recovery in this destination during the Summer 2009 season and volumes to Thailand were ahead of last year. We are the only tour operator to offer direct flights on our own airline from all major Nordic airports to the Thailand market, which strengthens our position as the leading long haul operator in the Nordic region.
The Summer 2009 programme performed very well, with strong customer demand, particularly in the lates market. Load factor improved by six percentage points over the prior year, contributing to record Summer profits for the Nordics business. Summer 2009 capacity was reduced by 12%, with the majority of reductions targeted in the shoulder months.
During 2009, the level of differentiated product offered by the Nordics business increased by four percentage points to 41%. This was driven by the opening of a new eco-friendly Blue Village in Rhodes and the creation of a new concept, Blue Unique, with 20 small unique hotels in several charter destinations.
Controlled distribution increased by six percentage points to 85% in 2009, driven by growth in online sales which reached 52% in 2009 (2008: 46%). Improvements in web functionality and increased availability of products online contributed to the significant growth in online sales during the year.
Canada
Canada reported an underlying operating loss of £24m in 2009 (2008: loss of £5m). The Canadian market has for some time been both challenging and fragmented, and significant over-capacity resulted in deep discounting and margin erosion for all market participants in 2009.
We have reviewed the strategic alternatives for the Canadian business and on 29 September 2009 we announced that we have agreed a strategic venture with Sunwing, a leading tour operator in Canada. This deal strengthens our position in the Canadian market and has a number of strategic and financial benefits to the Group. This deal is subject to regulatory clearance, which we expect to receive shortly.
