Highlights

• Outstanding performance from Condor, where, following our withdrawal from consolidation negotiations, first with Air Berlin, and then with Germanwings and TuiFly, we demonstrated the ability to operate successfully and profitably on a stand-alone basis. Condor has delivered a strong performance in a challenging environment for airlines generally, as fuel prices reached record levels, and more specifically, in Germany, where the industry is extremely competitive. Condor’s result reflects strong capacity management, cost discipline and focus on operations at a time when merger negotiations could have resulted in distractions.
• Acquisitions that have transformed our market positions in France and Canada.
• The entry into a key strategic emerging market through the acquisition of Thomas Cook India, the largest travel and foreign exchange business in India. At the same time, we regained the world-wide rights to the Thomas Cook brand.
• A step-change in our e-commerce performance, spearheaded by Northern Europe, where recent months have seen over 50% of bookings being made online. In the UK, 27% of total bookings are now made online, while in Germany, where the internet market has developed more slowly, 7% of our customers now book online (an increase of 14% year on year), although a much higher number research online and then book through an agent.
• Rapid integration of our merged UK businesses, followed by decisive action on capacity, which have allowed us to deliver strong margin performance in a highly challenging market.

Our strategy remains focused on four key growth drivers: maximising the value of mainstream travel; establishing Thomas Cook as a leading provider of independent travel; building our position as a leading provider of travel-related financial services; and extending our business through mergers, acquisitions and partnerships, with a particular focus on emerging markets.

Measuring our performance

There is a direct link between our strategy and the key indicators of our businesses’ performance. These indicators are regularly monitored by the management team and Board to ensure we are meeting our objectives.

Maximise value of mainstream

Our integrated business model maximises our earnings from transport, accommodation and distribution through both retail and online outlets. It also gives us the flexibility to manage capacity and product mix, allowing us to adapt to differing market conditions. We therefore have considerable flexibility, giving us relative resilience in an economic downturn.

• In Northern Europe, our strong market position and our focus on e-commerce have allowed us to achieve another year of record profits.
• In the UK, our focus on medium haul has proved helpful at a time when sterling’s decline against the euro has augmented the demand for destinations outside of the traditional short haul destinations in the Eurozone. Our strong positions in Turkey and Egypt give us considerable advantage. We are also benefiting from the shift to higher margin all-inclusive resorts.
• While Thomas Cook France already enjoys the position of being the country’s largest travel retailer, the combination of its tour operating business with Jet Tours, the Paris-based, premium tour operator, ensures we are now also the country’s third largest tour operator, with a combined market share of around 10%. Jet Tours, with its principal brands Jet Tours, Club Eldorador and Austral Lagons, serves approximately 270,000 customers per year and complements Thomas Cook’s existing offering.
• The acquisition of 57 Neckermann Urlaubswelten retail outlets in Germany helps strengthen our German distribution, which remains key to that market.
• We have increased our stake in Iberoservice from 40% to 65%, a controlling interest. The balance is still owned by Iberostar. Iberoservice is a ground handling agency in Spain and it supports both the mainstream and the independent travel businesses.
• SENTIDO, the new hotel franchise based in Germany, gives us access to 17 hotels, principally in Spain, Egypt, Cyprus, Greece, Turkey and Kenya, and two Nile river boats, without increasing our risk profile. At the same time, we have the control to ensure they are high quality resorts, and the opportunity to develop this business further.
• In October 2008, we launched a new e-commerce platform, Starfish, to enhance the functionality of the thomascook.com website. It is designed to enhance online search by offering greater functionality and flexibility with higher quality information including maps and imagery. The ‘shortlist’ and ‘compare’ capabilities, that allow customers to draw up shortlists and compare options they are considering, are proving particularly popular and the conversion rate we are getting from visitors using these functions is more than three times the rate of other users of the website.

Leading independent travel provider

We continue to develop our independent business and are benefiting from the rapid growth in this area.

• We have brought new focus to the Independent Travel business in the UK through a significant organisational change, following which the UK business is now jointly managed by Pete Constanti, who leads the Mainstream Travel operations, and Ian Derbyshire, who leads the Independent Travel business. This allows us to maximise the opportunities in each of these areas and, where appropriate, to work together to ensure continued overall development in the UK.
• The acquisition of Hotels4U.com, the UK’s largest independent bed bank, enhanced the Group’s independent travel offering considerably. Hotels4U sells exclusively over the internet, providing accommodation and resort transfers to over 500,000 customers per annum. It has access to more than 30,000 hotels internationally. Our recently acquired business in India has been among the first to take advantage of including Hotels4U stock in their European holiday programmes.
• The acquisition of Elegant Resorts, the number one UK-based luxury travel company, supports our strategy of strengthening our independent travel position and builds on our current expertise in high-value luxury holidays. Elegant Resorts carries more than 20,000 passengers each year to luxury destinations including the Caribbean, the Indian Ocean, the Arabian Gulf and luxury European resorts.
• By acquiring TriWest Travel with its two principal brands, Fun Sun, an independent travel wholesaler, and Intair, a leading airline consolidator, we are creating a leading Canadian independent travel business with significantly enhanced customer reach and product offerings. The business will increase our profits from independent travel and improve our year-round profitability, which is currently skewed towards the winter.
• In December 2008, Thomas Cook announced that it had agreed to acquire a majority interest in Gold Medal International Limited, one of the UK’s leading independent travel companies.

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Leading travel-related financial services provider

The development of our financial services business is underpinned by the strength of the Thomas Cook brand and, by re-establishing world-wide control over it, we have considerably enhanced the potential to develop it in other markets.

• India is one of the fastest-growing travel and travel-related foreign exchange markets in the world, expanding by 15% per annum. Our acquisition of 74.9% of Thomas Cook India gives us the opportunity to drive this expansion. We are confident the strength of the foreign exchange business will provide a strong platform for profit growth.
• In the UK, unlike many companies, we are already operating under the new and increased regulation of the travel insurance industry, which comes into place at the beginning of 2009.
• Also in the UK, we expanded our foreign exchange franchise in airports, including our high-profile appointment as the leading partner in Heathrow Terminal 5 and Manchester Airport.

Capture growth and value through mergers, acquisitions and partnerships

The businesses acquired in 2008 are all performing well and we are generating synergies as planned. We continue to review opportunities for expansion, but will concentrate on those that are able to deliver earnings accretion by year two and exceed the cost of capital by year three.

• We are focusing on those emerging markets where tourism is growing at a faster rate than in our traditional markets, as demonstrated by our acquisition of Thomas Cook India, mentioned above. We are particularly encouraged by the opportunities in Russia and China.
• Through the acquisition of Thomas Cook Egypt, we have re-acquired control over the Thomas Cook brand in the important and fast-growing Middle East region, as well as gaining an established and profitable business.

Strategy outlook

Our strategy is serving us well, and the virtues of asset flexibility, prudent capacity management and tight cost control are manifest in these difficult economic times. We therefore do not plan to deviate from that strategy, but will be fully mindful of the conditions in which we are operating, for example in contemplating acquisitions – where we will focus our attention on emerging markets (China and Russia), which have clear strategic importance, and on deals where we see the opportunity to create exceptional value for shareholders.

We will also add further impetus to our efforts to work together more effectively as a Group, complementing our strategies in each of our geographic segments with new initiatives designed to extract further value through collaboration (for example across our airlines and with appropriate group-wide procurement initiatives). We will also pay particular attention to the e-commerce opportunity, where up to now we have focused on building websites which are integral to our local multi-channel strategies, but where we see a global opportunity for the Thomas Cook brand.

Finally, we will examine our brand portfolio, where we believe we have a number of strong brands, but more than we can support effectively. Central to our future is the Thomas Cook brand. It has been the leading brand in the leisure travel market for over 160 years and remains – along with our people – our most valuable asset.

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