Skift Take

The bankruptcy and liquidation of Thomas Cook is a monumental blow to the travel industry. The collapse of the company will continue to have ripple effects across the industry for a long time to come.

Thomas Cook, one of the most well-known and oldest brands in global travel, filed for bankruptcy early Monday UK time, ceasing operations for vacations, bookings, and flights.

“Despite considerable efforts, those discussions have not resulted in agreement between the company’s stakeholders and proposed new money providers,” Thomas Cook said in a statement. “The company’s board has therefore concluded that it had no choice but to take steps to enter into compulsory liquidation with immediate effect.”

The company filed for liquidation to the UK High Court on Monday.

“Despite huge efforts over a number of months, and further intense negotiations in recent days, we have not been able to secure a deal to save our business. I know that this outcome will be devastating to many people and will cause a lot of anxiety, stress and disruption,” said CEO Peter Fankhauser on Monday morning.

The collapse of the UK-headquartered firm, which can trace its routes back to 1841 and its eponymous founder, has left thousands of people stranded abroad with plans afoot to bring some of them home on special rescue flights.

Executives spent the weekend trying to come up an extra $250 million (£200 million) needed to complete a rescue led by its largest shareholder Fosun Tourism Group but the complexities of the deal and the amount of money involved appear to have scuttled those intentions.

The UK government and aviation regulator are now preparing to bring people back under a rescue plan given the codename Operation Matterhorn.

Last-Minute Talks

Negotiations over a potential deal to save the firm involved multiple stakeholders: the lending banks, bondholders and Fosun. All these parties had to come to an agreement for a deal to proceed.

In a statement Fosun implied disagreements with other parties had led to the deal failing.

“Fosun is disappointed that Thomas Cook Group has not been able to find a viable solution for its proposed recapitalisation with other affiliates, core lending banks, senior noteholders and additional involved parties. Fosun confirms that its position remained unchanged throughout the process, but unfortunately other factors have changed,” the company said.

The vicious circle of bad news also likely hampered efforts. Negative press headlines make consumers less likely to book a Thomas Cook holiday, which meant less cash coming into the business, which meant it needed even more money.

Plenty of people were hoping for some help from the UK government but any such move would have been difficult given the company’s pan-European business. Almost three-quarters of its tour operator revenue in 2018 — some $6.8 billion (£5.4 billion) —came from outside the UK.

In an interview on Sunday UK foreign secretary Dominic Raab said contingency planning was in place and on Monday prime minister Boris Johnson confirmed Thomas Cook had looked to the government for around $187 million (£150 million in funding).

“Clearly that is a lot of taxpayers’ money and sets up a moral hazard in the case of future commercial difficulties that companies face,” he said.

Thomas Cook employs 21,000 people in 16 countries with hundreds of thousands of people currently on one of its holidays in destinations across Europe, North Africa and the Caribbean. Many people will have booked holidays for later in the year or even 2020. It also has 116 aircraft spread across multiple airlines.

Not only will the collapse impact employees and customers — in the UK alone it has more than 500 retail shops — the knock-on effects for other businesses in the travel ecosystem could be catastrophic. Hoteliers might struggle to get paid and other travel companies using Thomas Cook airlines or selling Thomas Cook packages will have to make alternative arrangements.

At least part of the company appears to still be trading. German airline Condor has asked the German government for a bridging loan, according to the German Press Agency. 

Condor had attracted takeover interest from rival Lufthansa Group earlier this year.

Financial Protection

The good thing about package travel in the UK and Europe is that it is a tightly regulated business, which means that even if companies go bust consumers shouldn’t lose out.

The UK’s airline regulator has been running the Air Travel Organiser’s Licence scheme since the early 70s and the rest of Europe has caught up thanks to the Package Travel Directive.

Not every country is as generous with its financial protection. The UK actually offers repatriation flights to bring stranded passengers back home. This happened when Monarch — another tour operator and airline albeit a much smaller one — collapsed in 2017.

Flight-only bookings are a little bit more complicated and most won’t be covered by the licensing scheme, however, passengers might be able to claim through travel insurance or credit card providers.

Monarch’s demise cost the UK taxpayer $51 million (£40.5 million). Bringing back stranded Thomas Cook passengers would likely cost a lot more as it would involve multiple countries.

“Companies and governments across Europe would have to pick up the bill for this. The collapse of Monarch Airlines was big, but this would dwarf it,” one industry insider told The Times of London prior to the collapse.

Gradual Collapse

There are many, many reasons why Thomas Cook has struggled, some related to the company, others out of its control. It has suffered under a mountain of debt for years, which has left it unable to invest to catch up with rival TUI and the swathe of online travel agencies.

Add to that, a disastrous 2010 deal to expand the number of physical stores, right when consumers were switching to the internet, and you have a company without the financial flexibility to move with the times.

These issues might be OK in isolation but when combined with a series of damaging external events, there was little room for maneuver. In the last decade it has faced the ash-cloud crisis, rising fuel costs and the Arab Spring. Both of which caused significant problems.

The role of Brexit in all this is more complicated. Looking at Thomas Cook’s conversations with analysts since the referendum in 2016 it would appear not.

Fankhauser said in July 2017 that “Brexit creates some uncertainty for our industry” but a year later when asked about it he said: “We see no uncertainty in U.K. customer behavior so far.” Then this year he observed weaker demand in the UK and that “this may be down a bit mix of everything, the Brexit for years and the heatwave into October.”

Speaking at Skift Forum Europe earlier this year, Fankhauser explained the difficulty of trying to grow a business that had such high levels of debt.

Thomas Cook India, which is majority-owned by Canadian investor Fairfax Financial Holdings, is not affected by the news.


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Tags: europe, thomas cook, uk

Photo credit: A Thomas Cook plane. The company is being liquidated. Alan Wilson / Flickr

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