Thomas Cook was one of the biggest travel groups in the world and, as reinforced to Third Bridge Forum, a “phenomenal brand” when it entered into compulsory liquidation in September 2019. Thousands of holidaymakers were stranded after a GBP 900m recapitalisation plan with its long-standing Chinese shareholder Fosun Tourism and lending banks fell through.
Its collapse sparked what has been widely reported as the largest repatriation in UK history and while it was certainly a shocking event, it seemingly wasn’t out of the blue. The company’s share price had continuously tumbled throughout the year, from a high of 38.4 pence on 4 January to 3.5 pence on its final day of trading. Meanwhile, its H1 2019 results revealed that during the first half of FY 2019 net debt rose from GBP 972m to GBP 1.2bn.
While the general consensus is that debt was the overwhelming catalyst for its demise, a mix of other factors — such as fierce industry competition, the impact of geopolitical events and dubious management decisions — also weighed heavy on the company over several years.
According to one expert we interviewed in early 2019, although the problems Thomas Cook was facing last year — particularly in trading — were down to “an element of internal mismanagement”, the team appeared stronger than in 2012 when the company was blighted by “strategic calls that didn’t make sense”. Over the past few years, strategic clarity has been non-negotiable for companies operating in the travel industry, with pressure stemming from macro trends including the consumer quest for customisation, the growing prevalence of low-cost airlines, and the shift to online travel agencies. A confluence of factors appears to have created the perfect storm for Thomas Cook.
Comparing Thomas Cook to rival TUI, this expert described the former as slightly more fragmented in terms of distribution and reliant on third-party travel agents, while TUI’s approach is more vertically integrated. This makes it more difficult to control messaging. “You’re talking about a fairly weak online proposition,” they said. “I don’t think Thomas Cook have made at all much headway in having a really phenomenal website, versus perhaps the TUI website in Germany or in the UK.”
Another specialist interviewed by Third Bridge Forum highlighted that tour operator business models are more vulnerable to influential factors such as the prolonged European heatwave in 2018, which Thomas Cook cited in its latest financial results as being among the reasons for reduced customer demand for winter sun, along with the Brexit process and high prices in the Canaries.
Of course, this challenge was not unique to Thomas Cook; in February 2019, TUI shares fell after the company said its margins were under pressure on summer bookings due to the weak pound and the previous year’s hot weather.1https://www.ft.com/content/41209e1e-2b08-11e9-88a4-c32129756dd8 However, TUI could “compensate much more”— not only on earnings, but also because the “portfolio itself is more sophisticated”.
Thomas Cook’s relationship with hotels also came up in Forum Interviews, with one expert saying the company was “losing out” because of its eroding value proposition and another noting that TUI’s hotel and cruise offering was stronger and more differentiated. In February 2019, Thomas Cook announced a strategic review of its group airline, including a potential sale, to invest more in this area of the business.2https://www.bbc.co.uk/news/business-47155137 Despite making progress on its “strategy of differentiation” — having opened 12 new own-brand hotels out of a 2019 pipeline of 20, four new Cook’s Clubs and its first family Casa Cook in Crete — it was clearly still under pressure.
There is no doubt that Thomas Cook had been struggling for years on a number of fronts before the doors of this once much-loved travel firm closed for the last time. According to one of the aforementioned experts, the company always felt “a little bit muddled” on its long-term strategy and just seemed to be “caught on the hop”. Although many of its headwinds over the years were beyond its control — during what has been a tough period for the industry at large — perhaps it dragged its feet for a little too long on matters that had been in view for some time.
But whether this is truly the end for the company is up for debate. According to media reports, Fosun won the bid to buy its brand and intellectual property assets for GBP 11m, which “could allow the business to be revived as an online travel agent”.3https://www.ft.com/content/25f25a44-fc07-11e9-98fd-4d6c20050229 Also of note, Norwegian property tycoon Petter Stordalen and private equity firms Altor and TDR Capital rescued Ving Group, Thomas Cook’s profitable Nordic business. Ving Group was described during a Forum Interview as Thomas Cook’s “finest asset” that was “quite decoupled from the rest of the business”. So, although Thomas Cook Group no longer exists as we knew it, this may not necessarily be its final call.
Read other articles in the series on Boeing, PG&E, Sealed Air, Babylon and Disney.
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