Thomas Cook founded in 1841 collapsed on September 23rd after a decade of financial troubles. Up till recently the company looked likely to escape bankruptcy, having agreed on a rescue deal last month. The Chinese conglomerate Fosun was keen to deploy the Thomas Cook brand in Asia, and the company’s lenders, were going to inject £900m into the firm. Fosun was also keen to sell off Condor, its profitable airline in Germany, which has managed to avoid bankruptcy.
But in September the firm’s main banks threatened to withdraw their support if the group was not able to find an extra £200m in financing, which they calculated it would need to see it through the more difficult winter months. None of its other backer, Fosun, the banks, bondholders or hedge fundswere, prepared to invest anymore. A last-minute appeal for a government bail-out was rejected much to the dismay of many in the Labour Party.
The company has earned most of its revenue since the 1990s selling package holidays, which include various combinations of flights, accommodation and food in one, usually lower, price. Industry experts say that this is because Thomas Cook is able to use their scale to negotiate lower prices when booking flights and hotels.
Thomas Cook’s collapse is not a sign that package holidays are in decline in fact the industry is enjoying resurgence. Around half of Britons’ trips abroad are package deals, according to the Association of British Travel Agents. The number of Britons going abroad on “inclusive tours” has risen from 14.3m in 2010 to 18 last year. It’s still cheaper to buy a group holiday as a package than purchase the parts separately. The young holidaymaker market is growing particularly fast. Many travel agents attribute this to the popularity of “Love Island”, a reality show featuring attractive young adults are their drunken sexual exploits on telly for all to see.
So what happened to Thomas Cook?
One factor is being undercut by rivals. New travel websites, such as Expedia, allow holiday makers to book their own flights and accommodation. And the rise of low-cost airlines, many of which refuse to sell their tickets via travel agents, have lured their customers away from their 550 high street branches, which were expensive to shut down.
Thomas Cook also faced competition from internet companies. New online-only travel agents, such as On the Beach and We Love Holidays easily undercut Thomas Cook on price. They are now Britain’s fourth- and fifth-biggest package-holiday operators.
Another reason by the company is Brexit. The company and other industry analysts claim Brexit has knocked consumer confidence and the depreciation of Sterling has discouraged Brits from popping off abroad for a holiday of cheap pints in the sun.
But ultimately Thomas Cook’s own poor business decisions that are to blame for its demise.
The firm inherited too much debt when it merged with MyTravel Group, a rival package-holiday firm, in 2007. Another series of poorly planned Mergers and Acquisitions added to the debts. The company could never shake off this debt, which had reached £1.9bn by March 2019.
Thomas Cook made a risky bet on Tunisia as a destination just before a string of terrorist attacks shut down the country’s industry. The big losers are the 600,000 odd holidaymakers currently travelling with Thomas Cook. Britain’s Civil Aviation Authority have had to make plans to repatriate at least 150,000 of the holidaymakers now abandoned abroad. German authorities are organising an even bigger operation to bring home over 300,000 travellers.
Arguably the big winner is TUI, now Britain’s biggest tour operator, which sees its closest rival knocked out of the market. But there’s no reason TUI won’t struggle to fight off competition, from low-cost and online travel companies. The market certainly isn’t confident given that TUI’s shares have already fallen by 40% over the past years.
With margins on flights squeezed by competition, they are aiming to increase their profits by turning their websites into one-stop holiday shops. Kenny Jacobs, Ryanair’s chief marketing officer, wants its website to become the “Amazon of travel”, selling hotel rooms, car hire and even airline tickets for its rivals. a sign that its prospects have become much less sunny.