Thomas Cook, once a massive organization with a vast holiday network and their own airline, has gone belly up after it failed to secure a £200 million bailout. But what did they do wrong? Let’s have a look.
The original debt
The tale of their downfall begins with their massive debt.
Back in 2011, the company was saddled with £2 billion in debt that it had to secure a loan from a consortium of banks, led by the Bank of Scotland. They tried to get through the backlog by issuing new shares to the tune of £425 million. But as mentioned in this BBC summary, a few years later all that working capital was burnt up and the debt was only reduced to £1.6 billion.
Oddly, they actually issued dividends to shareholders in 2017, practically giving away cash to those who had bought shares when the money (and this is subjective) should have been used for cash flow.
But even with a huge debt, the company made over a billion pounds as a year in annual sales, so what else would be to blame for them to not recover fast enough?
Changing market conditions
The tour company actually blamed the weather in 2018, claiming that the vast heatwave reduced demand for summer travel from generally colder northern European countries.
“The first six months of this year have been characterized by an uncertain consumer environment across all our markets,” said chief executive Peter Fankhauser to the Independent in May 2019.
“The prolonged heatwave last summer and high prices in the Canaries reduced customer demand for winter sun, particularly in the Nordic region, while there is now little doubt that the Brexit process has led many UK customers to delay their holiday plans for this summer.”
The ongoing uncertainty of Brexit (and what it means for airlines and holidaymakers) has made some regular customers pause their normal holiday plans. As you might recall, Brexit was due to take effect multiple times this year with an almost comical series of delays. Each due date has been linked to a drop in overseas travel from England and the fall in the power of the pound has made Thomas Cook become increasingly expensive.
Additionally, there has been a changing trend in customers making their own travel plans. It is so easy to find cheap flights onboard European low-cost-carriers with hotel deals that going through a vast tour operator like Thomas Cook seems old fashioned. This is reflected in the companies ongoing issues with cash flow over the years.
Other failures include finding a buyer for their in-house airline and additional funding saw the company slowly unravel and end up where it is today. And we have not even mentioned the same problems plaguing airlines in Europe (and across the world), high fuel costs and competition from other low-cost carriers.
Thomas Cook didn’t fail due to poor management, changing market conditions or political instability, but rather a thousand small issues that slowly mishandled resulting in the house of cards finally collapsing.
What do you think? What was the main reason the company went bust? Let us know in the comments.