Thomas Cook: What's gone wrong at the holiday firm?
Thomas Cook: What's gone wrong at the holiday firm?
(6 months later)
Travel firm Thomas Cook has come a long way since its formation in rural Leicestershire during the early Victorian era.
Travel firm Thomas Cook has come a long way since its formation in rural Leicestershire during the early Victorian era.
Founded in Market Harborough in 1841 by businessman Thomas Cook, the fledgling company organised railway outings for members of the local temperance movement.
Founded in Market Harborough in 1841 by businessman Thomas Cook, the fledgling company organised railway outings for members of the local temperance movement.
Some 177 years later it is a leading global travel group, with annual sales of £9bn, 19 million customers a year and 22,000 staff operating in 16 countries.
Some 178 years later, it is a huge global travel group, with annual sales of £9bn, 19 million customers a year and 22,000 staff operating in 16 countries.
Profit warnings
Thomas Cook has had a chequered history, including being nationalised in 1948 - when it became part of the state-owned British Railways - and owning the raucous Club 18-30 youth brand, which it recently closed after failing to find a buyer.
Thomas Cook has had a chequered history, including being nationalised in 1948 - when it became part of the state-owned British Railways - and owning the raucous Club 18-30 youth brand, which it recently closed after failing to find a buyer.
However, just as the travel world has progressed from temperance day trips, so the modern business and leisure market is also changing, and at a far faster pace than in previous decades.
However, just as the travel world has progressed from temperance day trips, so the modern business and leisure market is also changing, and at a far faster pace than in previous decades.
The firm is being buffeted by a number of factors: financial, social and even meteorological.
The firm is being buffeted by a number of factors: financial, social and even meteorological, with last summer's heatwave affecting bookings.
Six months ago shares in Thomas Cook were trading at just below 150p. Now, after two profit warnings, they are worth just a fraction of that price.
Last summer, shares in Thomas Cook were trading at just below 150p. Now, after the company's third profit warning in less than a year, the price is now just a fraction of that.
Its shares had fallen by nearly 60% over the past week, to a six-year low, although there was a mini-renaissance on Wednesday following news that chairman Frank Maysman had bought 373,000 shares at 21.6p.
Worse still, analysts at Citigroup bank have described the travel firm's shares as "worthless".
Meanwhile, its bonds have dropped in value, as the cost of insuring its debt against defaulting on payments hit a record high. Financial analyst Moody's has also downgraded its rating on the company to B2 from B1.
Brexit impact
'A lot of disruption'
Thomas Cook has warned of "further headwinds" for the rest of the year after reporting a £1.5bn loss for the first half of 2019.
Stuart Gordon, an analyst at investment bank Berenberg, has followed Thomas Cook's financial performance closely.
Some £1.1bn of the loss was caused by the decision to write down the value of My Travel, the business it merged with in 2007.
"There is a feeling the company may have to ask its shareholders for more money," he says.
It said there was "now little doubt" that Brexit had caused customers to delay their summer holiday plans.
The firm has blamed its drop in profits on a prolonged UK summer heatwave hitting overseas bookings. Meanwhile, winter bookings are also down by 3%.
The firm is also looking to sell its airline and says it has received "multiple" bids for its planes. Its auditor has warned of "material uncertainties" over the airline sale, on which a new £300m bank facility depends.
"I think the hot weather played a part in what happened to Thomas Cook over the summer," says Mr Gordon.
Potential buyers from outside the EU are not able to own more than 49% of the airline because of European Commission rules.
"The fact is that it is a pretty structurally challenged company. As consumers we are moving online, it is causing a lot of disruption for them."
Despite worries over its future, Thomas Cook has sought to reassure customers, saying it is "business as usual".
He says holidaymakers are using the likes of AirBnB and Ryanair to put together their own holidays, and no longer buy traditional package deals.
"We have ample resources to operate our business and at the same time, as usual, our liquidity position continues to strengthen into the summer period," it has said.
"I am not saying the package holiday industry is dead, but I do think they will continue to face challenges," Mr Gordon says.
The summer months are the most profitable for travel companies, but the winter can be tougher as far fewer people tend to go away.
Airline sale?
As well as weather issues, and stiff competition from online travel agents and low-cost airlines, there are other disruptive factors, including political unrest around the world.
As well as weather issues, and stiff competition from online travel agents and low-cost airlines, he notes there are other disruptive factors, including political unrest in countries such as Turkey.
And many holiday-makers are putting together their own holidays and not using travel agents.
One potential move being discussed as a partial solution to Thomas Cook's current financial headwinds, is the potential for the firm to sell its airline, which operates 94 aircraft.
However, despite this, the package holiday share of the market has remained broadly unchanged.
"This is something that the company has previously considered but it has, thus far, concluded that the airline gives it a competitive advantage," Mr Gordon says.
One reason for this is that most air package holidays sold by travel companies based in the UK have ATOL protection.
"We doubt that Thomas Cook will sell this asset. However, if the company revisits the prospect, we question whether there would be interested parties."
This protection means that if the business collapses while someone is away on holiday, they will be able to finish their trip and then travel home.
Thomas Cook's rival TUI, which owns the Thomson brand, is less reliant on package holidays and has diversified into the cruise and hotel businesses. "So they are not just reliant on package holidays," Mr Gordon says.
If a business folds before someone's trip, the scheme will provide a refund or replacement holiday.
It all means that Thomas Cook may need "some kind of fundraising" in the near future, the analyst argues.
Thomas Cook has closed 21 of its stores, its currency arm Thomas Cook Money is under review and more "cost efficiencies" are planned.
'Industry leading'
It says more of its 566 stores could close as leases end, and that 150 roles will be cut from its Peterborough head office.
However, analysts at US multinational investment bank Jefferies differ from this critical picture and believe that Thomas Cook can avoid a "capital raise".
Thomas Cook's main rival TUI is less reliant on package holidays and has diversified into the cruise and hotel businesses.
In a note for investors they also say that the firm's recent partnerships, such as with online booking firm Expedia and with Hainan Tourism Development Committee in China are "industry leading".
They add: "Thomas Cook's Airline, in our opinion, has transformed from a side-show for the tour operator, into an impressive airline in its own right. It now represents more than half of group operating profitability.
"In our opinion, Thomas Cook would be open to a minority stake sale in its airline, looking to retain majority control to ensure control over capacity looking forward."
They believe a sale of a minority stake in the airline could realise £400m for the firm.
And with regards to digital bookings, they say: "We are impressed by Thomas Cook's ongoing shift online, especially in the UK where it saw 30% online growth in bookings year on year."
'Brand value'
Simon Calder, travel editor of the Independent, says Thomas Cook is the strongest brand name in travel.
"They have great value in their heritage, brand recognition, and they also put together pretty good holidays. But for the past 25 years they have taken their eye off the ball and failed to spot trends, mainly the emergence of no-frills travel and what it has meant for people's holidays."
He said that as well as rival TUI thriving, Thomas Cook had also been hit by the rise of budget airline Jet2 - which has become the second-biggest tour operator: "They have picked up a lot of the bread and butter holiday market that Thomas Cook used to have."
Mr Calder said that Thomas Cook was "not a complete basket case" and that its business in Germany and Scandinavia remained healthy.
"But its share price is embarrassing," he said. "The market seems to be taking the view that Thomas Cook will stay in business, but that there will be a funding call to investors.
"A lot of people emotionally feel they have a share in the ownership of Thomas Cook - it was nationalised once after all. It is a shame to see such a great brand name held in such contempt by the market."
