GOING NOWHERE How ineptitude and apathy killed a travel giant
UK travel giant was felled by bosses’ mismanagement
● There is a long list of questions that must be answered following the collapse of Thomas Cook. The most obvious is how did a company that notched up turnover of £9.6bn (R178bn) end up in the hands of liquidators?
Thomas Cook wasn’t just a giant of the travel industry: it was a corporate beast, with 22-million customers, operations in 16 countries and 21,000 employees.
It also operated a fleet of 116 aircraft that rivalled some of the big names in European aviation such as Alitalia, Wizz Air and Jet2. It had 560 high street shops and worked with more than 4,000 hoteliers across Europe.
It was a tour operator, retailer and airline all rolled into one, and yet it made a paltry £11 on each customer.
Boss Peter Fankhauser has blamed all the usual factors for the company’s demise, including the weak pound, fuel prices, Brexit and the heat wave that engulfed the UK last summer, dampening bookings for foreign holidays. Such external pressures certainly made life harder for a business desperately trying to keep its head above water.
There are plenty of other places to point the finger, too. Why did banks including the Royal Bank of Scotland, which is 62% taxpayer-owned, pull the plug on a rescue deal agreed on back in July?
Lenders have a lot to answer for. It is a mystery why the banks kept throwing money at a business that nearly went bust in 2011. Surely its previous dalliance with bankruptcy demanded a new era of prudence?
The auditors at EY must face some searching questions, most notably whether the company was too liberal when it came to booking exceptional items in the accounts.
Earnings were flattered by nearly £360m of “separately disclosed items” over three years until new finance boss Sten Daugaard ordered a more conservative approach.
In reality, though, that is something of a sideshow. Thomas Cook was ultimately undone by mismanagement. Costly strategic errors were made, and its debt pile ballooned out of control. The decision of Fankhauser’s predecessor-but-one, Manny Fontenla-Novoa, to ramp up the tour operator’s high street presence through not one but two big deals was spectacularly stupid.
The 2007 merger with MyTravel was the subject of a £1.1bn writedown this year. Then a tie-up with the Co-op in 2011 doubled shop numbers to more than 1,200, when the high street was making way for the internet.
It operated a fleet of 116 aircraft that rivalled some of the big names in European aviation
And though former CEO Harriet Green’s cost-cutting act secured the company’s future, there was little left for Fankhauser to build on when she left in 2014.
Unlike Green, Fankhauser was well liked by staff, but the Swiss boss was far too slow to address the company’s weak balance sheet and outdated package-holiday model.
Thomas Cook was crying out for serious investment, but eye-watering debts meant there was little room for manoeuvre. At times, the board seemed unaware, or ignored, that the finances were so stretched.
The apathy is laid bare in last year’s annual report. Frank Meysman, the chair, describes last year as one of “mixed fortunes”, blaming the weather predominantly for losses of £160m. Incredibly, he fails to mention a bill of £150m for various finance costs, including debt interest and refinancing fees, that obliterated profits.
Meanwhile, Fankhauser seems no more alive to the crisis that is about to unfold. Indeed, among the “big and bold moves” he trumpets is a decision to cut ties with animal attractions that keep orcas in captivity and a new pledge to reduce plastic waste.
There is also a section dedicated to new services including “choose your favourite sunbed”.
Those statements were made 10 months ago, at the end of November. Less than two weeks later, a second profit warning in as many months had been issued and analysts were talking of a £400m shortfall.
The CEO’s review totals 3,200 words. Yet, remarkably, debt is mentioned only once.
However, by May the following year, borrowings had spiralled to a colossal £1.3bn, £361m higher than the previous year. This wasn’t a board that had momentarily just dozed off — it was asleep at the joystick.
Thomas Cook had to weather its fair share of external pressures. At times, the travel industry is more volatile than others. Yet, with a stronger balance sheet and more decisive management, it might have stood a chance of survival.