Why Thomas Cook, the World’s Oldest Travel Company, Collapsed
Thomas Cook, a British travel agency, began life in July 1841 offering day trips to teetotallers between Leicester and Loughborough.
In its heyday it counted Mark Twain, Rudyard Kipling and Winston Churchill among its customers before evolving into a leading modern package-holiday firm.
But its story ended ignominiously with holidaymakers being locked in a Tunisian hotel by security guards demanding that they pay again for their rooms if they wanted to go home.
The world’s oldest holiday company collapsed on September 23rd after a decade of financial troubles. It leaves behind just one fully-integrated tour operator in Europe that still owns shops, airliners and hotels itself: TUI of Germany.
Until recently the company seemed likely to escape bankruptcy, having agreed on a rescue deal only last month.
Fosun, a Chinese conglomerate keen to deploy the Thomas Cook brand in Asia, and the firm’s lenders, were going to inject £900m ($1.1bn) into the firm.
It was also keen to sell off Condor, its profitable charter airline in Germany, which is still in business.
But on September 20th the firm’s main banks threatened to withdraw their support if the group was not able to find an additional £200m (FJ$482m) in financing, which they calculated it would need to see it through the lean winter months.
None of its other backers—Fosun, the banks, bondholders or hedge funds— were prepared to do so.
A last-minute appeal for a government bail-out fell on deaf ears.
What went wrong?
What went wrong? Thomas Cook has earned most of its corn since the 1990s selling package holidays, which include some combination of flights, accommodation and food in one price. Since then the industry has often been presented as in decline, in part because of Thomas Cook’s woes.
Monarch Airlines, a company that had specialised in package holidays, collapsed two years ago.
New booking websites, such as Expedia and Skyscanner, enable travellers 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.
Thomas Cook earlier this year also blamed the uncertainty surrounding Brexit for depressing bookings.
The related depreciation of sterling will not have helped either.
Yet Thomas Cook’s woes are not a sign that package holidays are in decline; if anything, the industry is enjoying a resurgence.
Half of Britons’ trips abroad are still part of packages, according to the Association of British Travel Agents, an industry group.
The number of Britons going abroad on “inclusive tours” has risen from 14.3m in 2010 to 18.2m in 2018.
It is still cheaper to buy a family holiday as a package than book the components individually.
Analysts say that, in part, this is because TUI and Thomas Cook are able to use their scale to negotiate lower prices when booking hotel rooms and seats on flights.
The number of younger package holidaymakers is growing particularly fast.
Travel agents
Many travel agents attribute this to the popularity of “Love Island”, a reality-television show featuring buff bodies and plenty of snogging set in a holiday villa in Mallorca.
Thus it is mainly Thomas Cook’s own poor business decisions that are to blame for its demise.
The firm inherited a mountain of debt when it merged with MyTravel Group, a rival package-holiday firm, in 2007.
An ill-judged series of takeovers then added to it.
The company could never shake off this debt, which had reached £1.9bn (FJ$ 4.58bn) by March.
Its 550 branches on British high streets also swelled its overheads and were an expensive liability to shut down.
New online-only travel agents, such as On the Beach and We Love Holidays, now Britain’s fourth- and fifth-biggest package-holiday operators, easily undercut Thomas Cook on price.
A big bet on Tunisia as a destination just before a series of terrorist attacks that closed down the country’s industry, and a slowdown in holiday bookings last year due to good weather at home, did not help.
The last straw was the £1.5bn (FJ$ 3.61bn) in losses the company made in the six months to March, which damaged the company’s balance sheet.
The big losers are the 600,000 or so holidaymakers currently travelling with Thomas Cook.
Britain’s Civil Aviation Authority plans to repatriate at least 150,000 of the holidaymakers now stranded abroad in the biggest evacuation of Britons since the second world war.
German authorities are organising an even bigger operation to bring home some 300,000 nationals.
The big winner is TUI, Britain’s biggest tour operator, which sees its closest rival knocked out of the market.
But even TUI could struggle to fight off the next wave of competition, from lowcost carriers.
With margins on flights squeezed by competition, they are hoping to leaven 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. TUI’s shares have already fallen by 40 per cent over the past year— a sign that its prospects have become much less sunny.