About 600,000 travellers around the world were stranded when Thomas Cook, one of the world's oldest travel brands, closed shop this week. Photo / AP
Its package tour business model was successful for 178 years, but as consumer demand changed and moved online, the company did not.
After 178 years of operation, British tour operator Thomas Cook, one of the world's oldest travel brands, with 19 million annual customers, closed shop on Monday. The company announced that it would be liquidating its assets and filed for bankruptcy, despite attempts to rescue the brand.
At the moment of its collapse, Thomas Cook had a debt of 1.7 billion pounds (about $3.3 billion), an amount the chief executive, Peter Fankhauser, had called "insurmountable." It had been in negotiations to obtain US$250 million ($395 million) in emergency financing when it declared bankruptcy.
About 600,000 travellers around the world were affected, 150,000 of them from the United Kingdom and about twice as many from Germany, said airline industry analyst Bob Mann, and more than 20,000 employees worldwide found themselves without a job.
What happened? At a time when more people than ever are traveling, how could an established brand like Thomas Cook implode? And what now?
The Thomas Cook Group was a British travel company famous for offering a distinct convenience to travelers: the ability to have all the pieces of their vacations linked, from flight to hotel room to local transport to tours, and even meals. The brand offered one-stop shopping for those who needed a getaway: Book a Thomas Cook vacation, and the only thing you would need to do was pack a bag and go. The company even ran its own hotels and in recent years, operated its own airline. Its slogan pointed to the all-inclusive aspect of its business model: "Don't just book it, Thomas Cook it."
That concept worked for generations of travelers, and the brand built a solid reputation. Zane Kerbey, president and chief executive of the American Society of Travel Advisors, an association representing travel agencies, said that Thomas Cook's reputation among both travel advisers and their clients was very good: "a quality brand."
As recently as this summer, Thomas Cook Airlines was flying passengers to at least 82 destinations around the world, in Africa, Asia, North America and Europe. Although the United States was not the company's primary market, it still had a significant presence in some markets: During the past year, the company operated nearly 1,000 flights with 257,000 passengers out of Orlando International Airport, according to Carolyn Fennell, the airport's senior director of public affairs.
The travel bookings business has increasingly moved online, but Cook's business largely did not, though it announced an alliance with Expedia in 2017. It relied heavily on physical stores and telephone assistance. Globally, the brand operated more than 600 physical stores — called "high street" stores in the United Kingdom for their location on a town's main commercial street.
"They were never very good at digital," said Rafat Ali, chief executive of Skift, a New York-based media company that provides research and marketing services for the travel industry. "That's fair to say."
"The package holiday market has gotten squeezed because it is so much easier for consumers to pick the elements they want for a holiday, and for them to be able to pick them at a good price," said Tim Davis, managing director of Pace Dimensions, a consulting firm that advises travel businesses on how to adapt to the digital world. He pointed out that during the past decade, Expedia and Booking Holdings have come to dominate the market with their search capabilities. "Instead of moving in that direction, Thomas Cook moved toward the direction of being a tour operator. Although they had more control over it — by owning the hotels and the airline — the market has continued to get squeezed."
Davis put it bluntly: "It is a market that is going to die, it is just a matter of time."
Scott Keyes, founder of air travel website Scott's Cheap Flights, said the desire of millennials for more individualised journeys also played a role.
People can now do their own research, "find your own adventures," Keyes said. "There's new competition in tours and activities, whether it's big players like Airbnb or smaller players, the market has gotten more difficult for tour operators because of this shifting taste. It's not as necessary to book packages."
The package business is also seasonal, said Ali of Skift. "The problem is that packages have a very defined season. So if one season goes bad — maybe because the summer is too hot, or because a key market, like Egypt, is experiencing trouble — it affects the cash flow of a company like Thomas Cook very badly."
In the early 2000s, Thomas Cook began moving into the airline business. The company slowly absorbed Condor, a Frankfurt, Germany-based airline that was formerly a subsidiary of Lufthansa. In 2003, the company began operating its own airline, Thomas Cook Airlines, a United Kingdom-based operation with 34 planes in the fleet traveling to 82 destinations.
Many experts pointed to that decision as a primary source of its troubles.
"It's very hard to operate a travel agency, and it is very hard to operate an airline," said Kerbey of the Travel Advisors association. "And the lessons you learn operating a successful agency do not always transfer to operating an airline. Both are independent, complicated businesses in their own ways."
Aviation consultant John Strickland noted that carriers like Thomas Cook don't have the flexibility of a stand-alone airline. "You aren't offering the same kind of schedule options," he said.
The sunk costs of running an airline, combined with the operating costs — the crew, maintenance, and more — make any airline vulnerable to declines in demand. But Strickland said that Thomas Cook's business model made it even more troublesome.
"The nature of the market is that they are seeing big peaks in the summer and troughs in the winter," he said. If you own your own planes and don't have passengers during quieter months, "that becomes a big challenge."
Thomas Cook's chief competition was the German-based tour company TUI Group, which also has an airline. When the internet threatened to eat into the business of conventional tour operators, TUI executives started acquiring and operating cruise ships and hotels in an attempt to differentiate their agency from the competition. Now, in addition to a fleet of 150 airplanes flown by five company-owned airlines, TUI operates 17 ocean liners and 380 hotels mainly in Southern Europe and Southeast Asia.
"We're getting 70 per cent of our earnings from our cruise ships and hotels. Tour operations and airlines make up only 30 per cent," said Kuzy Alexander Esener, the head of media relations for TUI.
The loss of Thomas Cook is an opportunity for TUI, Esener said. Its TUI Fly airline has been contacted by British authorities searching for jetliners to charter to bring Thomas Cook's stranded passengers back home.
In May, Thomas Cook's chief executive, Fankhauser, warned that "the Brexit process has led many UK customers to delay their holiday plans for this summer."
Kerbey also blamed the uncertainty around Brexit, at least in part. He pointed to the particular difficulty of operating an airline in Europe, a market that is awash in low-cost carriers like Ryanair and easyJet, and where purchases need to be made in dollars.
"A lot of your bills are in dollars; you have to buy oil in dollars," he said. "So when there are shocks to the system, like the U.K. with Brexit and the pound losing so much value, all of a sudden that makes the loans you have very difficult to service."
"Travel agencies are doing well around the world. Airlines are doing well around the world. But combining those together with an uncertain market and a falling currency, for a company that is saddled with that much debt, you get a perfect storm."
Thomas Cook customers who have flights booked through October 6 will be flown home, using a cobbled together fleet of airplanes, most of them from charter companies, said Mann, the airline analyst. Those with tickets on Condor, the German carrier that is a subsidiary of Thomas Cook, will be able to fly home on that airline, which continues to operate.
There are at least a dozen charter airlines around the world that together have more than 60 planes that could be put to use, he said. Many will have available planes because of the dip in airline traffic that comes in the post-summer travel season, he said.
Atlas Air of Purchase, New York, a cargo company that owns a 747 passenger plane, dispatched its 400-plus seat jumbo jet to Manchester, England, to help with the repatriation. Mann expected charter companies that fly passengers to the Hajj, the annual pilgrimage to Mecca, which ended in August, to be enlisted.
He also expected airlines like Malaysia Airlines, with underused Airbus A380 wide-body planes, to be enlisted.
"The logistics of the British piece are probably going to be 750 flights, assuming they can do them efficiently and get people on them," Mann said. "It's kind of Dunkirk as far as the United Kingdom goes," referring to the naval evacuation of British troops from France during World War II.
A spokeswoman for British Airways said the airline is working with the UK Civil Aviation Authority to provide seats for customers returning to the United Kingdom on existing flights.
In Germany, Lufthansa Group said it is honouring tickets booked through Thomas Cook back to Germany on its Lufthansa, Austrian Airlines or SWISS carriers.
One group of planes that will not be ferrying passengers: the Thomas Cook fleet, which Mann watched being flown to its Manchester base on radar Sunday night.
Written by: Shannon Sims
© 2019 THE NEW YORK TIMES
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