How Thomas Cook(ed), Burned & Failed to Serve

“We found out that our holiday was cancelled via Twitter.”

"I guess I now have to spend what’s left of my vacation time figuring out how to get back home. What should have been a very memorable time is now memorable for the wrong reasons." (Twitter user @California_Ram)

“No one is answering the phones... Stuck in Greece with a 2-year-old!” (Twitter user @Blackjack42B)

These dismaying reactions typify the collective outrage of close to 1,50,000 stranded vacationers and overall, 6,00,000 travellers during the early hours on September 23, 2019, when the UK Civil Aviation Authority (CAA) announced that lionized British travel group – Thomas Cook – had filed for compulsory liquidation and had “ceased trading with immediate effect”. At the time of the asseveration, the oldest travel agency (globally) boasted impressive operations – managing 100 aircrafts, 180 nominative hotels, over 560 stores, and employing 21,000 people, yet it was also burdened with a mammoth debt of 1.7 billion pounds. After a prodigious and inordinate 178 years in business, Thomas Cook all but bit the dust. Before we set out to critique and ascertain what went awry, it is obligatory that readers acquaint themselves with the superb trajectory of the company in question – its business survived both the World Wars (during which the firm oscillated from being a private entity to a state owned agency before being privatised again), managed to withstand the 2009 financial crisis and barely outlived being toppled over in 2011 owing to a massive shortage of funds.

One naturally begins to ponder: after withstanding such economic hardships, what was the last straw? How is it that in a century when, more than ever, individuals are choosing to travel abroad, a stalwart like Thomas cook was forced to shut down? The fall, at the surface level, is attributed to the inability of securing 200 million pounds required for the company’s survival; in reality however, a multitude of woeful factors and events that built up over the years led to the eventual demise of the firm.

Founded back in 1841 by a businessman and preacher Thomas Cook, the company is credited with devising the “package tour” industry, a unique and innovative business model that served the agency tremendously well. What set the brand apart was the convenience it offered to travellers – a one-stop shop for all your getaway needs, ranging from flights to tours to hotels and meals. Its slogan is testament to the inclusivity the model aimed to emulate: “Don’t just book it, Thomas Cook it.”

At the outset, one of the foremost setbacks faced by Thomas Cook was unexpectedly the Internet, or rather its mortifying diffidence and failure to adapt to dynamic contextual variables, like digitization. While most travel businesses shifted online and burgeoned, Cook firmly and predominantly perpetuated its operations via its (almost 600) expensive concrete (or “high street”) stores and telecommunication. The relevance and impact of digital business in today’s era is self-evident and irrefragable, and therefore it was only a matter of time before the firm would have to face the aftermath of customers preferring online bookings than in-person meetings. While the cost of moving bases would have been tremendously high (while also reducing employment opportunities and eliminating personalised corporeal customer services), ultimately the price the company had to pay by way of losing customers and revenue far surpassed the former.

Before proceeding, what must also be noted is that the firm also suffered losses not because the number of vacationing Britons has reduced; on the contrary, it is because of how we holiday that has changed. This second deterrent was, in part, a consequence of the first: booking holidays online gave individuals an opportunity to design their own vacations rather than opt for existing tour packages that offer little to no room for flexibility. With the advent of e-businesses, Thomas Cook found itself being increasingly replaced by newer, fresher and customer-friendly online platforms – Airbnb, for instance - leading to a sharp market squeeze in the package tour industry. In a way, the very same strategic model that permitted decades of uninterrupted success to the agency also marked its downfall. All over, travellers are now getting more accustomed to curating their holidays by picking out various components and elements of their choice at better prices. Moreover, based on a survey conducted by travel agent trade body Abta, only one in seven people actually visit a high street store to book a holiday, and these individuals belong largely to the aged and lower socio-economic populace. Instead of moving with the tide, Thomas Cook largely assumed the role of “tour operator”, thus failing to keep up with the shift in tastes and intensive competition.

To compound worries, maintaining an airline is exceedingly onerous and, more often than not, expensive & tragically unprofitable. In the early 2000s, Thomas Cook expanded to manage its own fleet of airplanes – Thomas Cook Airlines. It is a well-established notion that broadly, any airline is susceptible to major losses owing to sunk and operating costs (i.e., maintenance, crew, etc.). In addition to this, the business model of the company proved even more fatal – seasonality played a major role in its operations, leading to increased demand in summer months and troughs in winter. Many experts are of the belief that the launch of its own airline was a major vehicle to the realization of the company’s later hindrances.

Add in Brexit, political tensions and climate change to the above mix and you have yourself a recipe for disaster. Brexit had severely affected and weakened the pound, thus causing a decline in UK holidaymakers’ demand and purchasing power and operating an airline all the more difficult. Furthermore, in 2016, unrest rose in Turkey due to an attempted presidential coup, subsequently causing a steep downturn in tourists in Thomas Cook’s leading customer destination. In 2018, the heatwave augmented the company’s issues since a higher number of European customers opted in favour of staying at home than going abroad.

Yet what sealed the deal for Thomas Cook was the mounting debt: the company was unable to pay off a debt of £ 1.1 billion in 2011, something that almost led to the firm going under. Cook also faced the misfortune of numerous ill-managed deals, particularly the inexpedient and foolhardy 2007 merger deal with MyTravel Group – a company that declared a profit only once in the previous 6 years – which pushed the travel agency further into the abyss of saddling debt. Raising £425 billion from shareholders in 2013 was of little help and insufficient; majority of the “bailout” money was paid in interest alone (nearly £1.2 billion). By August of 2019, Thomas Cook managed to secure a £900 million funding package as an attempt to pull the company out of the red, which was spearheaded by the firm’s primary shareholder, Fosun International. As per the terms, the Chinese conglomerate would inject approximately half of the funding amount in exchange for 75 percent of Thomas Cook’s tour-operator and 25 percent of its airline businesses, while the remaining amount would be provided by Thomas Cook’s creditor banks and bondholders.

However, the deal fell through owing to a last-minute request from the creditor banks for an additional £160 million contingency in preparation of the stagnant winter months. This ultimately led to the collapse of the deal, and with it, it was officially curtains down for the travel booking giant.

Thomas Cook, figuratively and literally, “burned” itself as an outcome of catastrophic decisions which slowly but surely led to its collapse. While the purpose of the agency was to facilitate travelling around the globe, the company’s policies failed to “travel” with the changing times.

Pranati Trivedi

References:

1. The Hindu, https://www.thehindu.com/news/international/thomas-cook-collapses-with-600000-tourists-stranded-abroad/article29491145.ece

2. The Guardian, https://www.theguardian.com/business/2019/sep/23/thomas-cook-as-the-world-turned-the-sun-ceased-to-shine-on-venerable-tour-operator

3. International Banker, https://internationalbanker.com/brokerage/the-collapse-of-thomas-cook-what-happened-and-why/