Don’t Thomas Cook It
What we can learn from the former travel titan so that we don’t strand those who count on us
How Did We Get Here?
After 178 years of dominating the industry, how exactly did the UK’s largest travel group, Thomas Cook, manage to capitulate at such an alarming rate?
Since completing a MBA in Business Administration and Aviation in 2017, I have kept a close eye on developments in the aviation and travel sectors during the 21st century. I therefore think it’s appropriate for me to share my reflections on the staggering, yet perhaps foreseeable demise of this industry giant.
Throughout my recent years of interest and research on this topic, I noted what I saw as Thomas Cook’s greatest strengths, weaknesses, threats, and opportunities – many of which were missed. I believe herein lies a good place for me to begin my postmortem evaluation of the company.
Thomas Cook was the oldest and one of the largest travel companies in Europe. This, for quite some time, gave Thomas Cook an edge over their competitors. Thomas Cook was able to draw customers in with the affordability of their packages, which were often customised to respond to unique customer needs. Additionally, Thomas Cook was accessible. There were Thomas Cook agencies on nearly every high street, which gave this far-reaching global company a sense of local familiarity – one which will surely be missed. Thomas Cook then continued to defend its crown by continuously increasing brand awareness, whether it be through London’s 2012 Olympics or by becoming sponsors of some of England’s largest football clubs. From Thomas Cook’s track record then, it certainly seemed that the company knew how to grow and maintain the value of its brand.
However, I noticed in 2017 that amongst Thomas Cook’s many strengths, cracks had been appearing for quite some time; and as seen by the events of last week, in the past two years these cracks had grown into deep and cataclysmic ravines. Namely, these cracks were, unwise business deals; an insufficient response to the ever-increasing competition of the travel industry; the persistent acquisition of long-term debts; and the lack of strategic innovation in the face of an online revolution within the sector.
Flawed Business Decisions
To begin my postmortem evaluation, focused strictly within the 21st century, I need to dissect the last twelve years. In 2007, Thomas Cook merged with MyTravel, which looked as though it was going to be the deal of the century. The deal promised to save the companies millions of pounds per year and offered an opportunity to renew their ability to ward off encroaching internet rivals. This deal however was in fact a ticking time-bomb. Thomas Cook had inadvertently bound itself both, to a company that had only turned a profit once in the past six years, but had also acquired colossal debts, which would prove to the grim reaper that would follow Thomas Cook for the following twelve years.
In addition to inheriting these lingering debts, in 2011, Thomas Cook doubled down on what was a cornerstone of its past glory. The company merged with The Co-Operative Group, gaining roughly 1,200 additional brick and mortar stores. Being in the midst of an online revolution however, these stores became a liability and closing these stores proved extremely costly for a company that had just handcuffed itself to large debts. Thomas Cook’s mergers were therefore, in a sense, the company’s signature upon its own death warrant.
Fights With Finances
This was further proven when the company narrowly survived a brush with bankruptcy that same year as a result of its two recent mergers and escalating debt. The company’s debt pile had grown immensely and actions needed to be taken quickly in order to save the company from going under. Thomas Cook managed to stay afloat through negotiating some breathing space with its banks and bondholders, and with some emergency cash injections- which for a company already in the hole, was a bold move since this hasty tactic saddled the company with an even larger amount of debt to service in the future. Just two short years later, in 2013, the company survived demise once again by asking its shareholders for extra funds. Their compliance allowed Thomas Cook to live another day, or as we now know, five years.
It’s important to note here that neither of these brushes with death led to a sustained revival of the company’s fortunes. There were no actionable plans created for the future, just rusty paint-jobs that were doomed to scratch off quickly.
Thomas Cook played a game of Chutes and Ladders with the grim reaper over the next few years and by 2018 the paint-job that had been layered on were seeming to hold up. Trading was looking good and a promising rise of sales had led to a steady rise of shares, but it wasn’t enough. The company still had a dark cloud of debt looming over their heads.
External Forces at Play
The final nail in Thomas Cook’s coffin was however, the evolution of a new traveler and the rise of ‘do it yourself’ online holiday bookings which disastrously coincided with unpredictable variable factors such as weather and politics.
As the online travel industry began to grow, package holidays quickly became a thing of the past. The new generation of travelers liked to march to the beat of their own drum. These individuals were born and raised in the age of the internet; they liked quick, easy, do it yourself solutions and the high-street package holiday chains, like Thomas Cook, were left to feel the ripple of this new online trend.
It’s not to say that Thomas Cook didn’t make an attempt at joining the online world but their online platforms were operating on a much smaller scale in comparison to their competitors. Management seemed to lack a forward vision, and although I do commend them for staying true to their original brand, companies need to continuously be innovating and adding value in order to stay on top.
The types of holidays that interest travelers the most has also changed over the past few years. Recent studies show that you are much more likely to find tourists wandering the city streets of Prague or Paris, than relaxing at a remote beach on the coast of Spain. These recluse beach get-aways were what Thomas Cook excelled at, and with this change in traveler preference, a competitive edge was given to newly emerged online platforms such as Expedia, low-cost carriers like EasyJet and RyanAir, and the hotel/resort alternative Airbnb.
In 2017, even the weather had seemed to turn against Thomas Cook. Heat-waves struck all across the globe and the UK wasn’t left out. Graced with warmer weather and more sunny days, many travelers opted to stay in the UK rather than going abroad. This drastic rise in temperature completely decimated the demand in Thomas Cook’s bookings and caused them to start offloading deals at rock-bottom prices.
It would be unwise to ignore the consequences that Brexit’s uncertainty has generated within the travel industry as well. In addition to Brexit massively hitting the pound sterling’s buying power abroad, the political chaos worried potential travelers and caused many of them to delay their travels.
The End of an Era
In 2019, Thomas Cook’s inadequate paint job began to peel off for the last time. This past May, the company reported a £1.5 billion loss, with more than £1 billion written off from their 2007 merger with MyTravel. Last month Thomas Cook made its final attempts to release the hold of the grim reaper who now had the company in a choke-hold. The company was thrown a lifeline and agreed to a £450 million deal with its biggest shareholder, Fosun. Unfortunately, this wasn’t enough and no lender, including the government, could be found to extend additional funds to Thomas Cook. With its last minute attempts having failed, Thomas Cook’s lifeline snapped and the company finally succumbed to the reapers choke-hold this past week.
To conclude my postmortem evaluation, past and present research all point towards the same verdict, Thomas Cook was in trouble for a long time and this shutdown was inevitable. The company was destroyed by their lack of a proactive response to changing trends and adaptability. This resistance to innovation coupled with bad business decisions, poor financial planning, and being hurled along by attempting to finance an unfeasible amount of debt, Thomas Cook fell flat on its face and in turn stranded those who counted on them the most.
Upon my reflections, I can’t help but feel there are certain lessons to be learned from the curious case of Thomas Cook. Would any of this have happened if Thomas Cook had paid attention to the trends occurring and faced its problems immediately and head on, rather than searching for what always seemed to be the easiest and quickest, but extremely temporary, fix? Living to fight another day without long-term strategic responses isn’t really fighting at all. This mentality of fighting without changing is a dangerous one and tends to produce massive blowbacks, which as we saw earlier this week, was ultimately the source of Thomas Cook’s demise.