Thomas Cook: What went wrong?
The entire travel industry has been struggling to evolve and move with the changing way millions of us choose to book our holidays.
But Thomas Cook suffered harder than most, with a series of own goals and a debt pile that stood it apart from its rivals.
Here are some of the problems that led to the collapse of the world’s oldest travel agent.
The issue that tipped Thomas Cook over the edge all hinged on raising an extra £200 million.
Bosses had been negotiating with its lenders and biggest shareholder for months, and managed to secure around £900 million in new funding, but more recently it became apparent that it needed another £200 million to meet all its costs.
A separate lender is said to have been lined up, but they pulled out at the last minute. The other banks and lenders said they would only stump up the £900 million if the extra £200 million was secured.
Thomas Cook’s problems with debt stretch back several years. The company first renegotiated its £1.6 billion debt pile in 2013, kicking the can down the road until 2020.
However, by last summer it became clear that repayments were starting to put immense strain on the business – the company made all its money in the summer and needed enough to see it through the winter months.
Auditors were starting to question why so much money was being put down as “one-off” payments, forcing the board to change its accounting practices and the company started to try to sell off its airline. Meanwhile, a whole host of other factors hit the company and its rivals.
– Changing with the times
Current and former bosses have always claimed they knew Thomas Cook must adapt to an evolving holiday market.
Traditional travel agents were too slow to take advantage of the internet, claiming customers still wanted the face-to-face experience of walking into a shop to book their holidays.
Thomas Cook did reduce the number of stores it had, but by the end hundreds remained. All the while, rivals were eating into their market share, and the emergence of On The Beach really highlighted the problems further.
– On The Beach
Whilst Thomas Cook had 550 high street locations – with rents, rates and staff costs to consider – On The Beach was online only.
The rival – and many other online services – did not own hotels or an airline, so did not have the added expense, unlike Thomas Cook.
The new company was also able to forge good relationships with hotels, who would get paid far faster than those on Thomas Cook’s roster. To combat this, Thomas Cook placed its faith in opening or buying its own hotels – another high cost.
– The Arab Spring
Thomas Cook, and its rivals, suffered particularly hard in 2010 during the Arab Spring uprisings, as many of its most popular destinations started to look like no-go zones.
Bookings to Tunisia, Turkey and Egypt fell heavily and Thomas Cook took a large share of the slump.
At the time, the company was also getting dragged into a criminal case around the deaths of two customers in Corfu from carbon monoxide poisoning.
Thomas Cook would end up being told by a coroner it “breached its duty of care” and be heavily criticised for its reaction to the incident.
A constant factor highlighted by the bosses of Thomas Cook was the impact Brexit was having on the business.
Chief executive Peter Fankhauser said the uncertainty was causing a delay to bookings, and the original deadline of March 31 – right around Easter – led to travel agents issuing guidance of what will happen in a no-deal situation, in an attempt to reassure customers.
The pound falling against the dollar and the euro also hit the business, especially since it paid hotels in euros and bought fuel for its planes in dollars. Most commentators agree it was a factor, but not the only one.
– The 2018 Heatwave
The high summer temperatures from last year also hit Thomas Cook, as the last-minute weekend getaway market collapsed.
Potential customers preferred to stay in the UK (or in Scandinavia – another big market for Thomas Cook) to enjoy the warm weather, rather than jetting off for some summer sun.
– The Perfect Storm
Helal Miah, investment research analyst at The Share Centre, sums up the problems: “The group, like its peers, has suffered from a perfect storm of turbulence, from political unrest and terrorism at some of its most popular destinations, to unusual weather patterns seeing travellers taking staycations and the ever present Brexit uncertainty devaluing the pound and putting consumers off from booking holidays.
“The group has also been too slow to adjust to the online world. While other travel groups have suffered from these factors, Thomas Cook’s pile of debt is the differentiating factor.”