What Can Be Learned From The Collapse Of Thomas Cook

It's hard enough being in the travel business as a tech start up without one of the biggest players in the industry going bust after 178 years. Thomas Cook went into liquidation on Monday the 23rd of September reporting a ￡1.5Bn loss. 

I feel bad writing this as the staff and customers are still suffering from the impact of this collapse. To anyone reading this who was affected, I'm truly sorry for your situation. I write this however because for my own peace of mind I needed to find out why this could happen to a global company with 1000s of employees in my industry.

So why did it happen?

The problem it seems goes back as far as 2007 when in an attempt to strengthen their position Thomas Cook merged with MyTravel (a UK package holiday unit that included Airtours and Going places). Whilst not a total failure (see the Tj?reborg example later) this was designed to create a European power house in the travel industry allowing both parties to consolidate and save ￡75M annually. In reality Thomas Cook merged with a company that had only once in the previous 6 years made a profit and had huge debts. 

TUI their biggest competition has similar problems in the market (Brexit, travel patterns, digitalisation) but they don't have the same levels of debt. The MyTravel merger despite good intentions possibly turned out to be too heavy a burden to bear for too long for Thomas Cook. 

Did Brexit change the UK travel patterns?

Contrary to some reports that Brexit is hurting travel in the UK, according to the Guardian 5% more people took a holiday in 2018 as apposed 2017 but it's the nature of the holiday that has changed. 

Today’s traveller is looking less for the curated, big ticket experiences and more for tailored, local, artisanal offerings that reflect the unique offerings of the region they are visiting. Everything from lodging to meals, to experiences is being rethought and re-examined.

Travellers will often book direct flights to a location and then look for local experiences on their own. This has meant packaged holidays have suffered and things like city breaks have eaten into the beach holiday packages that Thomas Cook was renowned for. 

In addition Thomas Cook didn't think outside of their core offering (transport to hotels in packaged trips) when it came to digital. 

What about digital? 

According to many reports Thomas Cook weren't agile enough to take on new technology relying on retail and brochures to attract their customers. This in part is true, the Internet has levelled the playing field and Thomas Cook were slow to react. They have approximately 560 high street outlets in the UK alone, which according to the trade body ABTA only 1 in 7 of Britons use and those that do tend to be of the older, lower spending age groups. 

The rise of budget airlines served online like Ryanair and crowd sourcing of accommodation like Airnbnb, meant that the airlines and hotels Thomas Cook own both took a hit. 

Over the years their assets in these key areas have been dwindling. 

The MyTravel merger was an attempt to modernise and some successful profitable businesses came in and got stronger as a result of that, but when these mergers happened they couldn't have foreseen the onset of the sharing economy. 

What about the profitable businesses?

Many I've worked with in the travel industry over the years have forgotten more about digital marketing and sales than many of the so called guru's. 

The Finnish Thomas Cook brand Tj?reborg have made a steady 5% EBITDA for the last 3 years turning approximately €5M in profits per year. It's not a coincidence that all their bookings are managed online and there are no retail operations.

So not all the Thomas Cook operations were guilty of being slow to react to internet trends. Tj?reborg had 1 day of disruption on Monday 23rd and now are back to business as usual.

Skift interviewed Fredrik Henriksson, head of communications at Thomas Cook Northern Europe who said, "We have been a separate legal entity here in the Nordics but owned by Thomas Cook plc for the last 10, 11 years but we have been profitable here in the Nordics for many decades and we have been very profitable this year".

As these profitable companies are assets that Thomas Cook now have to sell, so it's inevitable we will see consolidation. Look for aggressive operators acquiring the solid businesses the company has like the Nordic operations. No doubt management teams in these successful parts of the group are looking for buyers. The management challenge there is keeping potentially unsettled staff from leaving.

Management problems?

Whilst some operations are running well, obviously the biggest markets like the UK aren't and Thomas Cook's management team is under investigation. The government of the UK wants the insolvency team to treat the investigation as a priority due to the impact on so many people. Around 9000 people in the UK lost their jobs and hundreds of thousands face disruption to their travel plans. 

If the problem has been coming for so long how then did the senior staff in Thomas Cook not manage for this? 

Reuters reported Peter Fankhauser, the chief executive of Thomas Cook, apologized on Monday.

He said; “We have worked exhaustively in the past few days to resolve the outstanding issues on an agreement to secure Thomas Cook’s future for its employees, customers and suppliers. Although a deal had been largely agreed, an additional facility requested in the last few days of negotiations presented a challenge that ultimately proved insurmountable."

Apparently a ￡900M rescue package had been agreed but an extra ￡200M was needed to see them through the winter and pay hotels for summer bookings. I don't know the details, these deals are complex but if ￡900M was already agreed a few days ago it's remarkable they have decided the best decision was to liquidate the company.

To me this just sounds odd. Yes, downsizing, tough decisions and perhaps even the break up of the company may needed to have happened, but liquidation probably could've been avoided and hundreds of thousands of people better served. The question I'm sure will be asked.

So travel patterns, lack of digital agility and management decisions 

Three things combined that seem to have contributed to the downfall of a loved and iconic UK brand. These are three areas that in my humble (and obviously biased) opinion are something we're helping to address with Toristy. 

1) Improving the packages. As discussed earlier, whilst there will always be a need for a packaged holiday at the beach hotel, tourists now have the ability to find more experience driven tours, activities, events or accommodation from a wide variety of sources. Toristy aggregates those services itself, but also enables any operator to sell the services on their own website.

2) Digital agility. Not only are Toristy putting the online tools in the hands of the Tour & Activity operator we're also offering their services to the big brands (large tour operators, airlines, ferries, trains, transport companies, hotels) in locations they serve. That way we hope to connect those sources digitally providing both with new revenue streams. 

3) Management decisions. Despite the overall failure of Thomas Cook I am still quite confident we can help management teams make informed decisions. We think technology is a fantastic enabler when it comes to fast decision making. If you can add 100 tours and activities to your website for a specific test of a destinations potential you can then do the math to see what would happen if you scaled up to all destinations you operate in so you would have a solid business case. 

In summary

It is a great shame that Thomas Cook couldn't pull off their rescue deal and feel for the staff and the customers affected. I do however feel that the future of travel is bright and what we're seeing with Thomas Cook is simply a sign of things to come if you don't pay close enough attention. Digital tools are here to stay with the agility and innovation they bring. Thomas Cook should be a warning to all the bigger players that they will need to move with the times. That said if they do, I believe the opportunity for large travel enterprises, as well as small, local businesses, has never been higher.