Why did Thomas Cook, UK’s oldest travel company collapse after 178 years in business?
Thomas Cook is a popular brand on the high streets of UK. However, this changed on Monday 23rd September when final talks to salvage the company failed. The announcement subsequently came that the company, UK’s oldest and possibly largest travel company had collapsed. A situation which left some 150,000 holidaymakers stranded in various destinations, and several future holiday bookings annulled.
The eventual cause of the collapse was the inability to secure a 200 million pounds facility from it’s bankers to keep it afloat. This situation has sent the over a century old company crumbling down to nothing. However, there seems to be a lot more to the woes of the company beyond the inability to secure funding for operations.
Real reasons behind the collapse of the travel company
There is hardly a single cause for an occurrence of such nature. Here are some reasons which contribute to the demise of the holiday giant.
The company was recently saddled with debt. There was a report of 1.5 billion Pound Sterling loss back in May this year, and a further debt write-off of over 1 billion Pound Sterling within the same period. It is believed significant portions of the debt was as a result of a merger with MyTravel (parent company of Air tours and Going Places) in 2007. The deal was meant to create a giant in the European travel industry, promising significant annual cost savings. It However ended up as a failed transaction from the onset. This led to the collapse of one of the world’s largest travel companies.
Thomas Cook merged with a company that was incurring huge losses and had reported profit only once in the previous six years of operation. The situation eventually added to the debts of Thomas Cook and the ensuing collapse.
Changing trends in Holidays & technology
Numbers of British holiday makers are soaring. Records show that 60% of British people took a holiday in 2018, as compared to 57% in 2017. Thus, the company’s collapse is not because fewer people are going on holidays.
Instead, reports suggest a shift in British holiday destinations. More holiday makers are opting for city beaks instead of beach resorts. Budget holiday companies like RyanAir, EasyJet and Airbnb seem to benefit from the emerging trend, with increase in online holiday bookings. Hence patronage of luxurious packaged holidays, a specialty of Thomas Cook via the company’s 560 high street outlets in the UK are on the decline.
According to ABTA, the UK travel agent trade body, only one in seven potential holiday makers currently visit a high street travel agency to arrange and purchase a holiday. Those who do are usually over 65 years with lower incomes and less money to spend. This also implies gradual reduction in the good fortunes of Thomas Cook over time.
With the Internet of things, most people compare holiday packages and prices, and make individual bookings directly online from the comfort of their homes. The inability of Thomas Cook to adapt to the digital age as opposed to its traditional high street presence implies a reduction in possible business, and the collapse of one of the world’s largest travel companies.
Effect of Brexit Negotiations and Increased Competition
Additionally, Brexit negotiations has created a lot of uncertainty for businesses in the UK. This has resulted in a lower than expected economic growth rate and a much weaker pound sterling. The situation put further pressure on the already slim profit margins of companies such as Thomas Cook.
The company has also faced increased competition recently from the rapid growth of AirBnB, and other specialist travel agencies and tour operators. Hence its large size of approximately 560 high street branches which was once an advantage for economies of scale eventually became a draining financial burden.
Global warming and the dynamics of the UK’s weather are additional factors that come to play in the demise of Thomas Cook. UK weather patterns is temperamental, and has witnessed soaring high temperatures in the last few years.
Some potential holidaymakers now choose to enjoy high temperatures at home during summer times instead of travelling overseas. Over the years, Thomas Cook has suffered reduction in demand for its packaged holidays, in a market with ever increasing sources of supply.