During the early hours of Monday, 23 September 2019, the Thomas Cook Group, a giant global tour operator and British high street icon, entered into compulsory liquidation. Superficially, this appears most surprising, given that at the time 600,000 holidaymakers, including 150,000 Britons, were away on Thomas Cook holidays in sixteen countries around the world. The end of the firm marked the passing of an era, as Thomas Cook was not only Britain’s first travel agent but indeed also the world’s oldest holiday company.
The liquidation means the loss of 21,000 jobs worldwide, of which 9,000 are in Britain, including 1,200 jobs at the company’s headquarters in Peterborough. Around 560 high street travel agencies will close for good. The ramifications are wide-ranging, with anticipated detrimental effects on the tourist economies of such countries as Spain and Turkey, where Thomas Cook was a major player.
The repatriation of the 150,000 British holidaymakers abroad will be organised by the Civil Aviation Authority (CAA) and funded by the British government to the tune of around £100 million. The largest peacetime repatriation of civilians will take place over a two-week period ending on October 6. “Operation Matterhorn” will involve a shadow airline of 45 chartered planes requisitioned specifically for this purpose. Those who booked package holidays will be fully recompensed by ATOL (Air Travel Organiser’s Licence), a financial compensation scheme operated by the CAA and funded through a levy on all holidaymakers. Those who booked flights only with Thomas Cook have been advised to contact their credit card companies or travel insurers for reimbursement of funds.
The immediate cause for the firm’s collapse was an inability to raise £200 million in emergency funds from its bankers, with this request for a lifeline also having been turned down by the British government. This came on the background of the firm’s mounting debts, which amounted to £1.7 billion at the time of liquidation. The debts have been steadily rising in response to a series of ill-fated acquisitions following re-privatisation in the 1970s. For example, more than £1 billion had to be written off after a merger with MyTravel Group, which included the brands of Airtours and Going Places, in 2007.
Thomas Cook, the founder of the business, started out by organising a one-day and one-shilling- per-head 12-mile-and-back rail excursion between Leicester and Loughborough on Wednesday 5 July 1841. The five hundred passengers were fellow teetotallers. The fare included a return ticket, a lunch of bread and ham, the services of a band, and attendance at a temperance rally in Loughborough. Cook was a wood turner by trade, a Baptist preacher, and also secretary to the South Midland Temperance Association. His philanthropic aim was to provide private outings for members of temperance societies and Sunday schools, and in the process broaden their minds and widen their horizons. Little could he have foreseen that in time to come, Thomas Cook would be overseeing the boozy and rowdy holiday antics of Club 18-30, a youth brand that the firm was to acquire in 1998.
Over time, Thomas Cook expanded into providing mass excursions for a wider section of the public and to other parts of the British Isles, before spreading out to various international destinations. The first continental tour came in 1855, to Belgium, Germany and France, culminating in the Paris International Exhibition. The first high street store opened on Fleet Street in 1865. The firm was nationalised, as part of the British Transport Holding Company, between 1948 and 1972. It was re-privatised in 1972, became the world’s largest foreign exchange retailer in 1990, and thereafter went through a succession of foreign owners. Most recently, the majority shareholder was Shanghai-based Fosun International Limited, a conglomerate that was involved with an unsuccessful £900 million rescue package at the last minute
Thomas Cook gradually evolved into a vertically integrated travel business, retaining overall control of its own supply chain, which included high street travel agencies, hotels, holiday resorts and even its own airline. One would expect this to be a recipe for continued success. So, what then went wrong? To start with, the business model was no longer suitable for the 21st century. The advent of online travel agencies and of low-budget airlines cut into the all-inclusive and relatively inflexible package (comprising travel, accommodation and food) holiday model of Thomas Cook, in which hotels were booked months in advance. Increasingly, as a result of shopping around, guided by comparison web sites and last-minute deals, holidaymakers are creating their own bespoke holidays, combining the best airfares with an itinerary and accommodation more suited to their individual needs. Predatory pricing by competitors and falling profit margins inevitably led to plunging sales and dropping share prices. The large bricks-and-mortar high street presence of the firm further added to its fixed overhead costs. Despite the increasing popularity of online sales, Thomas Cook continued to open new high street travel agencies.
Added to an unsuitable business model were the effects of a summer heatwave in Europe during 2018, which led to more holidays being taken at home rather than abroad, a rise in fuel costs, currency fluctuations, and political turmoil in certain destination countries.
As with many large business failures, the issue of remuneration of top executives is currently under scrutiny. It has been reported that the chief executive, Peter Fankhauser, received a total pay of £1.024 million for the twelve months up to September 2018. Since becoming chief executive in 2015, his bonuses alone amounted to £4.6 million. Similar large payouts mark the careers of his predecessors as chief executive, as well as other current top executives.
The only winners in this particular story are those hedge funds that are making money from the insolvency of Thomas Cook, having bought credit-default swaps (CDSs) on the derivatives markets. These CDSs can be cashed in when a third-party firm that is being speculated on, in this case Thomas Cook, defaults on its debt payments, leading to a windfall for some created by the bankruptcy of others.
Whichever way you look at it, it is a sad day for Britain’s history when a familiar and much-loved institution makes an undignified exit from the national scene.
Ashis Banerjee (Thomas Cook customer in the 1980s, 1990s and 2000s)