Travel company Thomas Cook collapses after bailout attempt

The world’s oldest travel company, Thomas Cook, has collapsed as a £200m bailout from government was denied, leaving thousands of jobs at risk and holidaymakers in despair.

Boris Johnson, the UK prime minister, told reporters: “It’s true a request was made to the government for a subvention of about £150m. Clearly that’s a lot of taxpayers’ money and sets up a moral hazard in the case of future such commercial difficulties that companies face.”

He added: “One way or the other, the state will have to step in to help stranded holidaymakers. One is tempted to reflect on whether the directors of these companies are properly incentivised to sort these matters out.”

Whilst the company initially secured a £900m rescue deal with the Chinese investment company Fosum, 22,000 jobs are now at risk around the world, including 9,000 in the UK.

Thousands of Thomas Cook customers are now seeing their holiday being cancelled, many still waiting for answers from the company. Hotels depending on the travel company will also face major losses.

In Turkey, for example, the collapse of Thomas Cook will deeply affect the tourism sector, which the economy relies heavily on.

Osman Ayik, president of the Turkish Hotelliers’ Association (Turofed) said: “Some hotels worked solely for Thomas Cook,” according to comments reported by Haberturk newspaper. “Many hotels will suffer difficulties.”

Origin of collapse

Back in 2010, the travel agency faced financial difficulties in the wake of the Arab Spring, as tourists were discouraged to travel in areas affected by the crisis.

Travel and tourism expert Dr Neil Robinson, from the University of Salford Business School, commented on the reasons behind the demise of the company: “The downturn in bookings post the Arab spring back in 2010, saw profits drop as people were reluctant to buy travel product associated with this region and the seeds of change for Thomas Cook and the wider travel sector were already being sown.”

Add this to the failure of complying with customer expectations and changing technology, and you create a formula for disaster.

“Fast forward a few years and the sector has come under many pressures associated with very slim profit margins for each travel product sold, a possibility of too many players in an already saturated market and one might argue that the product mix on offer at Thomas Cook did not align with what its customers really wanted.”

Their price, promotion and how people actually booked Thomas Cook holidays did not keep pace with changing technology and demand, for example they still had a lot of high street outlets, which incur rental and other costs,” he added.

Despite its attempt to repair the damage by adopting new strategies such as “Own-brand hotels,” described as “a strong pipeline for 2019,” the travel company fell to come out of its debt.

In its annual report, Thomas Cook revealed it accumulated a debt of £1.242bn by mid-2019, a slump compared to the previous half year which had reached £886m.

A vulnerable sector

“The events of the last 24 hours show us the vulnerability of the aviation/travel sectors. Mr Cook would be turning in his grave. A lad from Derbyshire who went on to create one of the world’s most recognisable travel brands, which now lies in financial ruin,” said Dr Robinson.

Whilst the collapse of Thomas Cook underlines the vulnerability of the travel sector, in which the industry encapsulates a saturated market, the liquidation of the company could also potentially foreshadow the upcoming of a decline in travel agencies.

Robinson added: “Are other companies set to follow? One hopes not, if in doubt make sure your travel provider has ABTA/ATOL protection, pay with a credit card and keep your fingers crossed, this sorry saga is not over yet.”

In the meantime let us pay homage to the once great travel provider that provided many of us with our first taste of the jet set & holidays overseas.”

Following the liquidation of Thomas Cook, many now question former CEOs’ salaries, with earnings reaching £35m altogether in the last 12 years.

Business secretary Andrea Leadsom asked the official receiver to investigate whether bosses’ actions “caused detriment to creditors or to the pension schemes.” Her request resonated with criticism over executive salaries a the firm, in which Thomas Cook directors were paid a combined £20m in salaries and bonuses since 2014.

Warning signs

According to analysts at global credit checking business Creditsafe, the changing conditions around Thomas Cook’s credit score were clear indicators of trouble in the business.

Cato Syverson, CEO at Credisafe, said: “Like many in the travel sector and on the high-street, Thomas Cook has been showing signs of struggle in the past few years.”

This conclusion shows not only the uncertainty within the marketplace when it comes to external factors such as Brexit, but also about the importance of companies continuing to invest in their services to ensure they remain relevant in an increasingly competitive sector.”

Syverson added: “The rise of low-cost providers and new entrants to the market such as Airbnb has changed the way the public now looks at booking a holiday. While the package holiday no doubt still has a place today it’s clear that the ease and affordability of booking travel and accommodation separately has had a knock-on effect to those businesses previously providing packages specifically.”

It’s important that business leaders don’t shy away from the facts when it comes to financial decision making and major company failures such as this only provide a reminder of that, and while data alone can’t provide a solution it should at least inform CEOs and finance teams of market conditions and how they can adapt.”

Creditsafe’s CEO believes 2020 could see similar scenarios if companies are not vigilant enough.

“The past few years alone has seen established names such as Maplin, House of Fraser, Blockbuster and now Thomas Cook run into trouble and 2020 could also be a tough year for businesses that aren’t able to react quickly to changes in market conditions. Businesses no matter how big or small need to make sure they are doing their due diligence when it comes to deciding who they will trade with,” he concluded.