Turbulence ahead

The fall of Thomas Cook serves as a warning to unchecked ambition

Sairan Uthayakumar Travel agent Thomas Cook, the world’s oldest travel group has recently declared bankruptcy which had triggered a ‘bitter blame game’ over who was to be held responsible (according to Alice Hancock and Daniel Thomas from the Financial Times). The main culprits for the company’s fall were the company’s banks, its managers and bondholders, and most importantly, Thomas Cook’s largest shareholder China’s Fosun. Thomas Cook opened in 1841 where it organised 500 people to be taken from Leicestershire to an important company meeting in Loughborough. Only 4 years later, they officially entered the tourist business, allowing customers to move from A to B quicker and cheaper than they ever had before to counties such as Nottingham, Derby and Liverpool. Business was going better than expected and the company was making a lot of profit. A century later, in 1948 the company was bought by the owners of Orient Express and immediately the travel agency became nationalised – it was transferred from private to state ownership, however it was privatised again in 1972. In 1972, Thomas Cook was sold to a series of companies such as Germany’s national airline called Lufthansa. Quoting directly from The Telegraph, the writers claim the ‘seeds of the company’s downfall directly comes from the decision to merge with a rival agency called myTravel in 2007’. MyTravel Group was a package holiday company based in the United Kingdom. It was founded in 1972 and ceased operations in 2007 – coincidently at the same time as merging alliances with Thomas Cook. Following the news that the travel agency had acclaimed £47 million in deficit since 2007, the current UK Prime minister, Boris Johnson complained whether the people in charge of finances and the company’s banks were ‘properly incentivised to sort these matters out’. According to Patrick Collinson of

the Guardian, T‘he 178-year-old tour operator was always going to struggle given the change in the way people take (and book) holidays”. This is because many consumers now book their holidays online. Such examples include Ryanair, EasyJet and AerLingus, with all of their customers booking online. According to the Guardian, ‘only one in seven pop into a high street to buy a holiday’.

However according to The Economist, the number of Britons going abroad on holiday is increasing by the year – as in 2010, the number of Britons going on ‘inclusive holidays’ was 14.3 million, compared to in 2018, where the number had skyrocketed to 18.2 million, in just 4 years. There is a simple explanation for this huge increase – the cost of travelling abroad has decreased due to

costs of flying for airlines (increased availability of oil for fuel). Furthermore, relating to this point, the Guardian adds, ‘it is still cheaper to buy a family holiday as a package than to book the components individually.’ Then why have sales fallen as the whole concept of Thomas Cook (and their main rivals TUI, who are also witnessing plummeting sales year by year) is selling holiday packages, whereas individual airline sites don’t offer family holiday packages. Additionally, the popularity of TV showbiz such as ‘Love Island’ has boosted the number of holiday makers to cheap locations such as the Canary Islands and Mallorca. In fact, the sponsor airline of the most popular reality television

Jet2Holidays has seen a significant increase in sales over the last year. The owner of the airline’s profits rose 36% to £177 million on the report of Travel Weekly. ‘Tim Jeans, a former managing director of Monarch airlines who left long before its collapse in 2007, told BBC 5 live Thomas Cook had "an analogue business model in a digital world". This exemplifies the idea that Thomas Cook was falling behind the pace of time and technology in which many holiday planners wouldn’t care about day because it was a much easier process. On the other hand, Jim Armitage in the Evening Standard stated that, ‘the internet and this summer’s heatwave could have contributed to Thomas Cook’s demise’. However, the main reason to the company’s fail was owing too much debt, which began (as discussed before) as a result of the company’s coalition with myTravel. Thomas Cook thought back in 2007, that this would be a good idea and the partnership of both companies seemed to be going really well whilst raising hundreds of millions of pounds from shareholders in 2013, until recent statistics illustrating that just before the summer had come to the UK this year, debts had calculated to approxfull payment to be paid back annual payments of £140 million each year in interest payments. Due to its increasing debts, the company was forced to put its airline up for sale in an attempt to clear the debt quickly to avoid further interest, however no shares in the company were sold. The collapse didn’t affect just the airline, but also providers for which the company advertises (e.g. hotels). The firm ran hotels and resorts for 19 million travels a year ranging in 16 countries (which was also another reason for its collapse because compared to cheaper British airlines, the airline wasn’t flying to as many destinations ; for example as of January 2019, easyJet declared its

fleet flew to more than 35 countries. Last year alone (2018), the airline flew over 90 million people which is approximately 5 times as more as

The popularity of TV shows has boosted visitor numbers to places like Mallorca.

show in the UK in 2018-2019, the extra ‘£100’ when booking a holi-

imately £1.25 billion, requiring the Thomas Cook.

Thomas Cook was forced to put its airline up for sale. As the airline struggled to pitch itself to a new haul of tourists, the company was hit by the 2016 coup attempt in Turkey (the illegal seizure of government authority in 2016). To add more heat to an already tough situation for the airline, ‘Thomas Cook needed another 200 million pounds on top of a 900 million pound package it had already agreed, to see it through the winter months when it receives less cash and must pay hotels for summer services.’ Moments before its collapse, bosses and chief executives of the airline met lenders in London to collate any last deal to save the company from liquidation ; unfortunately this did not go to plan.

To conclude, there were many factors that contributed to the closure of Thomas Cook, ranging from convenience for holiday planners to book their flights/accommodation (there were easier methods) to just not enough destinations, therefore decreasing popularity. Nevertheless, the most important reason to their fall was their unavailability to pay back debt in time and the distrust of their biggest shareholders in lending

money to clear their immense debts.