Thomas Cook - What Went Wrong?

September 2019

After 178 years in business Thomas Cook has collapsed into liquidation, and it is not because the British have stopped going on holiday, comments Leon Joseph of the Corporate Finance team. That’s far from the truth: in fact over 71.7 million trips abroad* were taken by the British in 2018, an increase of 1% from 2017. The most immediate cause for Thomas Cook’s demise was their failure to get an injection of cash from their bankers or even the government, but clearly the problems leading to their insolvency are deeper and go back much further than that.
 
Thomas Cook reported a £1.5 billion loss in May 2019, when £1 billion was written off from their 2007 merger with MyTravel. The 2007 deal that was supposed to make them a travel superpower to compete with the rising popularity of booking travel and holidays through the internet.
 
However it has become obvious that the way people book their holidays has radically changed, with many consumers now booking online rather than going into high street stores. Online travel agents such as Airbnb, Expedia, and Trivago have made it easy to book flights and accommodation from the comfort of your armchair, and airlines like Ryanair and Easyjet have offered rock-bottom prices for air travel.  Other factors have come into play such as Brexit and climate change. Brexit has made the foreign exchange market less favourable for Brits as the value of the pound abroad has weakened, not to mention the fact that most of Thomas Cook’s hotels and holiday locations were within the EU so their own negotiating position for bookings has been weakened over the past few years – although Thomas Cook continued to offer some of the lowest price long and short haul package holidays. Finally, it has been argued that climate change has seen the UK enjoying hotter and longer summers, meaning we do not have to go abroad to catch some rays.
 
The collapse of Thomas Cook has affected more than 150,000 people already abroad on holiday, 21,000 employees are now out of a job and over 600,000 people worldwide have had their travel plans disrupted. But whilst the liquidation of the company is terrible for staff and consumers, it is great news for their competitors.

In the hours following the announcement that the travel giant had gone into liquidation, many of their competitors saw their share prices shoot up:

  • TUI saw an 8% increase in their share value in the early hours of trading on the morning of Thomas Cook’s collapse
  • EasyJet’s share price rose by 5% within 30 minutes of stock market trading opening 
  • Ryanair also enjoyed an increase in their stock price with a 3% growth
But it’s not just about the money. There is also the fact that customers booking through a travel agent expect an extra level of care and attention which they would not receive if managing their holiday package themselves. According to Which? Travel’s July 2019 survey of 4,000 customers, Thomas Cook came bottom of the league, with customer service, accommodation, value for money and holiday reps all failing to live up to expectations. Consumers voted Trailfinders, Jet2 Holiday, Expedia, EasyJet, British Airways and TUI all higher than Thomas Cook, who only received a 69% customer satisfactory score.
 
So a number of factors have conspired to bring about the fall of Thomas Cook. For consumers who have remained faithful to Thomas Cook year in year out, there are many other holiday providers who have had better reviews and who recognise the importance of customer service. They might be a little bit more expensive but in this instance, you get what you pay for. For business analysts, it is a textbook case of an outdated business model failing to keep pace with a changing market.
 
Of course all of this will not help the staff of Thomas Cook, or the holidaymakers stranded abroad, or those who face having their forthcoming holidays cancelled. But for other businesses who can see that their future path may not be as easy as it once was, now may be time to talk to an expert.

* Travel Trends 2018, Office for National Statistics, May 2019
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