The collapse of Thomas Cook, Tempo and Ben Tours any links and lessons?

The collapse of Cox and Kings owned Ben Tours and Tempo Holidays along with the global headline grabbing demise of Thomas Cook in the UK is not uncharted territory for Australians.

How ever conflating the issues is neither relevant or helpful. 

The collapse of UK based Thomas Cook was shocking as it was a player of huge scale but more so in Australia because: 

• Its business narrative was emblematic of the development of the travel industry in Australia and New Zealand as well as in a number of Commonwealth nations. 
• Anyone who did a travel qualification learned about Thomas Cook on day one, lesson one. 
• Many, many Thomas Cook professionals ended up in management in Australia as they escaped the dark nights and long winters of UK or we worked for them on two year UK visas, so it is a corporate experience deeply embedded in Australia. 
• In the days before paypass and wifi we all bought money either from Amex, the local Bank or Thomas Cook and if we went to the UK, South Africa or NZ we cashed our travellers cheques in at Thomas Cook, so the brand touched us in Australia.

It may not have huge day to day lessons for Australia and New Zealand we don’t have a Thomas Cook or a big operator with the same business model. Where it may point to problems in where the collapse intersected with UK currency falls, a slow economy, risk from Brexit policy drift and climate variability (some say there is no evidence of climate change). So is just plain sad and awful and that we feel a great deal of empathy for our UK /Europe colleagues, is that is it? We could find out the hard way. 

We have a falling currency, year on year drought, a slowing economy, trade risks from USA/ China and events in the Middle East, a government unexpectedly in power and stuck in full policy drift with no concrete agenda.

The Cox and Kings owned Ben Tours and Tempo Holidays crash is a different issue, it is here, its in Melbourne, it effects are keenly felt, it hurts, the brands are well loved and their founders fondly remembered. 

For travel businesses across Australia there are lessons and considerations, it is an inflection point, it is cause to pause and think, it is the right time to take stock, especially if you are a business owner. 

It has learnings if you are a retailer, if you are doing a bit of wholesale on the side, if you are a wholesaler or if you are any kind of service supplier.What those lessons are are more difficult to pin down before a full public autopsy. I am always surprised by the number of travel businesses that have someone on the books who has owed them money for 90 days or more! Do you have one of these people lurking in your accounts?

One of the things I found most surprising about the collapse was the industry's general surprise even after months of rumours. Secondly that people are surprised that the parent company is still running! Remember Ansett, Jetset and Air ???, well Air ??? (who I love) they are still rocking it! Where as back in the day people like me and my team were out of work with in 12 months as aspiring group suppliers. It has nothing and I repeat nothing to do with the fact that the parent company is Indian, that is basic dog whistle racism unless you want to call out my favourite airline over Ansett? It is to do with the way the business was structured, so please I don’t want to hear it.

These are not strange, unique or unusual events in our industry, we have been here before. Unfortunately the industry has a sad habit of shaking out people over 50 in the management echelon ( yes, whoa me, verily I am one of them) so the corporate knowledge is lost and to an extent we as an industry cohort in 2019 are bound to repeat the mistakes of the past.

The Australian dollar reached a high of 1 AUD to 1 USD a few years ago, but it was at a low of $0.47 in April 2001, and it was a brutal slide from the late 90s, that took down some brands.

Twenty years ago was too early in the career of many of today's managers to make its mark. Many junior managers where still in high school or in University when this began in 1998, how many remember it well enough to deliver corporate value in 2019, are we equipped to manage the risk time?

If you look at the Euro we are down from 0.73 cents to 0.62 or less and the forecast is lower.

If you look at the USD we are down from 0.83 cents to 0.66 and a long way down from 1.04 to 1.00, again the forecast based on things like the iron ore bubble is for way lower, are you prepared? 

To over simplify things, say we are in a travel business. We do a three year plan and we factor in risks associated with currency in our three year plan. Then 36 months later on we are talking about the AUD 15% down against the Euro or 20% against the USD with our debts each period still in EUR and USD. 

If you have a wholesale business on 25 or 29% and you are giving 10% to agents and overrides and the currency is down 10 , 12, 15 or 20 % you don’t have a business model unless you push up prices and cut costs. 

Many businesses are very prudent which is good. 

Many businesses hedge their EUR and USD repayments. 

However what happens when the good news hedges are finally unwound and that USD you bought at 0.81c and 0.76c is gone, what happens if you have grown bigger than your gedges back in the day when you started? 

Hedging used to be an obsession in the travel business, Gary who founded Tempo had the reputation of being a hedge genius, that was back in the day in the early days of the Euro and before the Euro when you needed to do half a dozen currencies. Have you looked at your risk profile recently and given thought to what if?

The biggest risk, it is not even a black swan event, it is a sudden fall in the value of the AUD. You get to your accounting period end and the currency has fallen, you think it will bounce back and so you delay paying and it falls more. That is what happened last time to a few players. We all heard from the commentators and people in the know saying, “The Aussie will be back mate, nah worries its natural position is mid sixties”. It went on to steadily collapse to 0.50c, a small manageable loss for some businesses became terminal in a matter of weeks.

We are currently exposed to an unusually large and significant range of concurrent risks: 

• The housing recovery turning out to be a dead cat bounce
• A slowing economy causing more mortgage stress and less discretionary spending
• Low interest rates stopping the 55 plus market with savings from spending to travel
• Back to back drought further crippling exports of wheat, beef, dairy, wool, fruit etc and pushing up domestic prices faster than wages
• The Brazilians and others bring back their post Vale disaster iron ore production quicker than forecast and the ore price falls quickly effecting the national accounts
• China has a recession and buys less iron ore
• The US cuts a trade deal and as currently rumoured its consequence is China buys US agri products instead of Australian
• The world economy slows and demand for steel from China falls so the ore price falls.
• The GBP goes wildly up or down on Brexit, who knows how it will play out
• The Euro goes wildly up or down on Brexit, who knows how it will play out
• Brexit causes recession in UK and or Europe this slows world trade
• Italian banks are brought undone and Europe goes into a spin
• There is an accidental conflict in the Straits of Hormuz and energy price rises cause an economic blip and currency goes on the wobble
• There is an accidental conflict in the South China Sea and this causes an economic blip and currency goes on the wobble
• The trade war between the US and China escalates and both economies are affected especially for Australians its China’s economy slowing that blows ill
• Australia gets forced to choose sides in the super power conflict and the reality that US trade compared to China is piffling hits home
• The above events stop ethnic Chinese students studying in Australia, they are our largest non iron ore form of overseas currency and thus income, bigger than wheat beef gold and coal
• Swine Flu jumps the species barrier, that is the black swan economic Armageddon event

Each one is not significant, it is the combo that counts, the confluence of events, the unintended consequences of actions and policies for the unprepared.

The question is what have you done to seriously sit down and de risk your business? When was the last time you thought about the risks to your business and maybe to you as the owner or director of the business. More frighteningly to those of us who have been there, the risks are in the end of any kind of job loss or bankruptcy are to the family finances? 

There is plenty you can do, just starting with who owes you money and what are you doing about it, pushing down the amount of untaken staff leave on the books, re reading and re quoting your insurances and indemnities, re visiting rents, reviewing the wage incentive combo for your staff, one is fixed and recurrent the other is not. Sitting back and considering what you have changed in practices since the end of the TCF and its enforced rigour, is what you are doing best for risk management? What are the dates on your contact cycles, what is your spread on monies owed and payable, what is your forward risk at 0.55cents, 0.60 or 0.65cents. Who is always late, making excuses, cost cutting their service, not as good as they used to be, what are the signs? Are you educating yourself, did you know there are twenty global currencies pegged to the USD including bizarrely Cuba but also Jordan, Saudi, most of the Emirates and so on. Did you know there are currencies pegged to the EUR and GBP? Which destinations will get cheaper or more expensive in which scenarios. Which services and fees do you charge or offer that are currency risk or margin free. When did you last talk to your accountant about the business? You can also keep your ear closer to the ground. 

If you live in Victoria you could book some sessions with the Small Business Mentoring Service to talk about de risking your business or revisiting your business plan or economic model. You could sign up and get a business mentor from the TIME program. You could go to a lunch and talk to someone who has been there at a local SKAL Chapter function. Some travel brands have workshops and mentors that can help you prepare to navigate your business into new waters.

Remember the Australian dollar reached a high of 1 AUD to 1 USD a few years ago, but it was at a low of $0.47 in April 2001, it could easily be there again in 2021. 

The steady slow demise on the nightly news over years is manageable and travel businesses are good at adapting, it is the sudden flux, from a tweet or a collision of ships that is the stuff of nightmares.

We don’t know why the Tempo and Ben Tours businesses went down yet, but conflating it with Thomas Cook is not helpful. We can how ever start thinking about the new world of 2019/20 we are in just incase the Tempo /Ben Tours event is the canery in the coal mine.