Thomas Cook: Too big to change course?
As had been well-publicised in the days running up to the weekend, Thomas Cook was on the brink of administration. The debt-laden company eventually announced that a deal could not be reached with its creditors early on Monday morning and the Civil Aviation Authority has now had to step in and start Operation Matterhorn, the UK’s biggest repatriation effort since WWII! – the total cost of this is estimated to be £100m – and far larger than the costs incurred following the collapse of Monarch in 2017.
The government has since announced that there is an ongoing investigation into the circumstances surrounding the collapse, and it has been revealed that there was a £3.1bn hole in the company’s balance sheet prior to the collapse.
Additionally, it is reported that large sums, believed to be in excess of £300m are owed to hundreds of hotels, which led to reports of some hotels requesting that guests paid additional money on the property to retain access to accommodation and hotel services – knowing it’s likely they would not see money from Thomas Cook.
Were there any signs?
One of the first questions that is asked within our organisation as soon as there is a high-profile insolvency is: how early did we/Graydon identify this?
As you can see below, over the last 12 months, the Graydon rating deteriorated for the company, where we took it from SN – special rating, which caps the total limit at £10k - and eventually removed the limit completely by March 2019.
In fact, the highest credit limit that Graydon assigned to Thomas Cook Group in the last seven years was just £5,000.
A clear sign that despite the size of the company and its order book, its financial health was far from rosy.
What does the future hold?
The outlook for the sector, from many commentators, is one of difficulty – with rising costs and taxes, Brexit dampening demand and a backdrop of rising awareness of the effects air travel has on climate change.
There have been some immediate consequences of the business’ failure, with many hotel brands and resorts reliant on the income brought by the group – which was one of the world’s oldest travel companies. In Spain, there is already concern for thousands of jobs in the Canary Islands and the Balearics, and hotelier associations in Turkey have also aired their fears for the future of many members.
However, the large number of cancelled holidays and disappointed customers does suggest that there is a huge opportunity for other firms such as TUI, Jet 2 and others to fill this space. There has also already been some criticism of several travel companies’ pricing algorithms which have caused the price to spike, known by some as ‘dynamic’ pricing, penalising customers who are already stranded.
As for the wider sector, it’s clear that the future lies online, with flexibility and customer choice at the core of the proposition, and with the ease of price and ultimately value comparison.
With a large store portfolio and a brochure-first approach, Thomas Cook simply wasn’t nimble enough to compete in the new age of holiday let apps and flight comparison sites.