Money Finance News Why one of the world’s biggest travel companies collapsed
Updated:

Why one of the world’s biggest travel companies collapsed

The collapse of Thomas Cook ends a proud 178-year history. Photo: Getty
Share
Tweet Share Reddit Pin Email Comment

The biggest repatriation of people since World War II is under way, after the collapse of iconic British travel agency Thomas Cook left 600,000 holidaymakers stranded in hotels, resorts and airports around the world.

The world’s oldest travel company handles about 19 million travellers a year in 16 countries.

But mounting debts and a failure to secure a rescue package in recent days saw the 178-year-old firm enter compulsory administration on Monday morning (AEST).

The collapse is cataclysmic for a country dealing with an economy that went backwards in the June quarter, and the turmoil fuelled by the uncertainty over Brexit.

Not only has the demise of the company left 600,000 holidaymakers stranded overseas, but it also threatens to kill off 21,000 jobs – 9000 in the United Kingdom alone.

European stocks dipped on the news, while shares in competitor Tui surged 8 per cent in early trade.

It has also left government agency, the Civil Aviation Authority (CAA), with the mammoth task of the world’s biggest peacetime repatriation over the next two weeks, with more than 40 planes chartered from as far away as Malaysia to handle the operation.

UK newspaper The Guardian reported the operation is almost twice as large as the repatriation of 84,000 Brits when local airline Monarch went bust exactly two years ago.

That saw the CAA arrange 567 flights at a cost of £50 million ($92 million).

The Thomas Cook airlift, The Guardian speculated, could cost up to twice that figure.

In trying to explain its collapse, the company has at various times cited summer heatwaves discouraging Brits from travelling to traditional Mediterranean holiday spots; political unrest in some of its destinations; uncertainty due to Brexit; and the rise of online travel agents and low-cost airlines.

But Flight Centre managing director Graham Turner told The New Daily that much of the blame must rest with the company itself.

Mr Turner, who co-founded Flight Centre in 1981, said while “things are always up and down in the travel business”, most of what ailed Thomas Cook was about internal, not external, factors.

“I think a fair bit of this will be internal rather than external,” Mr Turner said.

“If you don’t make the right calls, and have the right strategy or don’t employ the strategy, this can be the consequence.”

Mr Turner speculated that things had begun to turn sour at Thomas Cook as long as 10 years ago due to “a leadership that simply had the wrong strategy”.

The problems have taken this long to come to a head because of the sheer size of the organisation, he said.

The company owns 117 aircraft flying under five different brands, has 13 tour operators in 16 countries and had revenue of almost £10 billion ($18.3 billion) in 2018.

“Over the last 10 to 15 years they focused largely on the [holiday] package market, using vertical integration with high-street travel agencies, with airlines, hotels and resorts.

“That model can work …. but their internal business strategy, their leadership, that has meant it hasn’t worked for them.”

And rather than change tack and adjust that strategy, Thomas Cook continued to take on more debt, he said, particularly over the past four to five years.

In the past week, the company needed to find £200 million ($368 million) to stay solvent, on top of a £900 million ($1.65 billion) package it had already secured to enable it to pay hotels for the summer holiday season.

Chief executive Peter Fankhauser said on Monday afternoon (AEST) he had worked “exhaustively” over the past week to salvage a £1.1 billion ($2.02 billion) rescue deal, but to no avail.

“It is a matter of profound regret to me and the rest of the board that we were not successful. I would like to apologise to our millions of customers, and thousands of employees, suppliers and partners who have supported us for many years,” he said.

The company launched a strategic review in February and in March announced plans to close 21 stores, costing more than 300 jobs.

Then in May, it revealed a half-year loss of £1.5 billion ($2.76 billion).

“Despite huge uncertainty over recent weeks, our teams continued to put customers first, showing why Thomas Cook is one of the best-loved brands in travel,” Mr Fankhauser added.

While many travellers vented their anger on social media, others urged people to have a thought for the 22,000 workers who would lose their jobs.

And others took aim at government inaction.

The Department for Transport (DfT) advised affected travellers they would be booked to return to the UK over the next two weeks “as close as possible” to their booked return date, either on special free flights or with another scheduled airline at no extra cost.

Comments
View Comments