“Don’t just book it… Thomas Cook it” was the business tagline used by the company which signifies its prestige in the tourism industry. Being the world’s oldest travel brand, the company started its operation way back in 1841 and in the subsequent years, it continued on its conquering sprees in the global market. With a magnificent history of 178 years, the travel titan was one of the Victorian brands that bravely survived the ferocious world wars, depressing recessions, hostile takeovers, and reorganizations and even having a Robert Maxwell as a major shareholder. The company didn’t restrict itself to tour operations but also entered the business of airlines, hotels, local transports, and meals.
On 23 September, 2019, the travel giant with such a prosperous legacy filed for bankruptcy triggering a heartbreaking domino effect of sudden job losses and shocks not only to the employees but also to the customers. Huge outstanding debt of 1.7 billion pounds and liquidity crunch were called the causes of downfall but in truth, the tour operator’s woes go back much further – victim of a devastating merger, incompetence of the executives, internet revolution and the BREXIT uncertainty, a final nail in the coffin.
Thomas Cook had an analog business model in the digital world that insisted on physical stores called as ‘High Street’ for sales of the tours and packages. The Hercules failed to analyze the dynamics of the business environment, in turn, failed to pitch a new generation of travelers. Over and above these high maintenance stores, it faced a robust competition from the online travel company, Expedia.
The tour operator offered package tours to the customers which gradually declined in popularity with the advent of technology and information access to the customers. People shifted their consumption patterns from predefined plans to more user-defined adventurous tours. The new generation with access to the internet could easily learn about cheap tickets and new locations. Package tours were seasonal; yet again were a major risk to Cook’s business model was posed by the risk of season failure. This challenge was not new for Thomas Cook.
This UK based company followed an aggressive expansion policy and in the 2000s absorbed Condor, Frankfurt-based airline that was formerly a subsidiary of the Lufthansa group. In 2003 it started its airline, Thomas Cook airline, with 34 planes in the fleet flying to 82 destinations. As Richard Branson, rightly quoted, “If you want to be Millionaire, start with a billion dollars and launch a new airline”. The airline industry has its complexities and sunk cost which incentivizes big names to stay away from it. Thomas Cook faced difficulties in sustaining the sunk cost and operational cost of crew, maintenance, etc. Germany based rival, TUI Group started operating in cruises and hotels; also witnessed strategic benefits from the competitors’ downfall. Low-cost carriers RYANAIR, EasyJet and low-cost accommodation by Airbnb magnified the misfortunes of the company.
Market obligated payments and aviation fuels expenditure in dollars became expensive when pound started depreciating because of geopolitical tension from BREXIT. Inevitably, perhaps, Britain’s political crisis already cast a shadow on the company’s demise. Heatwaves in the homeland and uncertainty of the visas, driving license stimulated Brits to postpone holidaying.
The merger with ‘My Travel’ way back in 2007 to save 75 million pounds turned out to be a disaster and they had to write off loses worth one billion pounds. Turkey and Tunisia, the most preferred travel destinations dealt with geopolitical tension abandoning tourism, yet again a major setback for the business.
The collapse has jeopardized the future of 21000 employees out of which 9000 are from the UK itself. More than 6 lakh travelers are affected and stuck in their respective destinations. The British government instead of stepping in and giving Thomas Cook breathing space has launched the biggest peacetime repatriation for the citizens in British history. The government does not want to set an example of moral hazard by injecting funds in the debt-laden operator. The company secured credit of 900 million pounds and wanted 200 million pounds more which when denied set off the collapse.
No sooner did the moratorium on the street trigger the fall in the stock and beleaguered the Thomas Cook India than the company’s executive clarified that they have a strong financial position and have no connection with the UK based company. Fairfax Financial Holding, a Canadian MNC led by an Indi-Canadian billionaire Prem Watsa acquired the Indian arm in 2012.
Businesses have moved from bricks to clicks and paced up with innovation in technology. This episode has been a great learning opportunity as it highlighted the fact that a business irrespective of its age, size, goodwill needs to change with time and should continuously monitor the business environment so that one can make strategic moves for sustaining the business in the long runs.