Complex Made Simple

Thomas Cook: The human cost of the collapse of a 178-year old travel company

The breaking down of the world's oldest travel company carries with it immense human cost, with hundreds of thousands stranded following the collapse, and thousands jobless.

On Monday, 2 am UK time, 178-year old travel company Thomas Cook announced its bankruptcy The company has been on a downward spiral for many years The collapse is being blamed on many reasons, but experts disagree with some of these claims

Envision this. You’re on a Thomas Cook flight, on your way to spend some quality time with  your loved ones on some exotic sandy beach. Your plane lands. As you get up to pick your carry-on luggage, you are told over speaker phone that your travel company has “ceased trading.” 

“Ceased trading?” a nearby passenger asks. “What’s that supposed to mean?”

It’s up to a heartbroken flight attendant to decrypt the corporate PR talk. 

“Company operations have been halted, sir,” a flight attendant explains, fighting through the tears. “We’ve just lost our jobs.”

That’s how we imagine many Thomas Cook flights went this Monday, when the 178-year old company announced its collapse in the middle of the night at 2 am UK time, stranding more than 600,000 holidaymakers in airports and hotels across the world, 150,000 of which are UK nationals. Additionally, around 21,000 employees are now without jobs.  

Some passengers were more fortunate, having found out about the collapse from Cook’s now deactivated Twitter account before departing from their homes to the airport. Many others weren’t, which has resulted in the world’s greatest peacetime repatriation effort in history

So what happens to the passengers now?

Governments, airlines and airports worldwide are scrambling to make sense of the ensuing chaos, trying to ensure passengers get home. Some hotels are asking for payment from their guests now that their travel organizer has gone bust – others are outright kicking them out. Each government is handling this differently. Some governments, such as the Turkish one, are ensuring travelers’ are protected from such acts. 

“If establishments request additional payments from Thomas Cook U.K. guests or vacate them from their rooms, these establishments will face legal action,” the Turkish Culture and Tourism Ministry said.

Some governments are also bailing out Thomas Cook’s subsidiaries to ensure their nationals get home safely. 

“Condor, the German airline owned by Thomas Cook, is set to continue flying after securing a €380m ($417.7m) bridging loan from the German government,” the Telegraph reported. 

As for travelers in the UAE, Gulf News has confirmed that they have not been affected.

“Thomas Cook offices in the UAE say they are unaffected by the collapse of Thomas Cook in the UK because they are affiliated with the Indian branch of the 178-year-old company,” the news site said. 

“A spokesperson from Rostamani Travels told Gulf News, ‘We are not affected because we are affiliated with Thomas Cook India, which is a completely different entity.’”

How did it get this bad for the $2.3 billion historied firm 

For the past 12 years, the company’s financials have been on a bumpy ride, plummeting for the most part, with short periods of recovery. Overall, Cook was on a downward spiral. 

Graph by Statista

“Factors behind the demise of Thomas Cook will likely include ongoing competition in the airline industry and more recently issues such as devaluation in the Pound following the EU referendum in June 2016, volatility in Oil prices and global uncertainty,” Jameel Ahmad, Global Head of Currency Strategy and Market Research at FXTM, said. 

He continued: “There have been more losses than profits in the past twelve years and this suggests that the business model has suffered for more than a decade and current issues such as Brexit uncertainty and weakness in the British Sterling should not be provided as explanations behind why the company went under.”

AMEinfo spoke to industry expert Saj Ahmad, Chief Analyst – StrategicAero Research, to learn his take on Cook’s bankruptcy. He shared a similar perspective with FXTM’s Ahmad in dismissing Brexit associations with the collapse: 

“In short, TC’s problems were two fold. First were its diabolical overhead costs, debts and pension obligations. Secondly, its inability to lower those costs and compete better with LCCs (low cost carriers).”

He continued: “Thomas Cook was not an LCC, nor a full service airline. It offered nothing that couldn’t be found elsewhere, often for lower price or better value. To that end, it simply wasn’t generating enough revenue. All this talk about currency woes and Brexit are by-products of a failed business model. Brexit and currency fluctuations weren’t an issue a decade ago – these are recent events, even in light of the oil price spike too.”

In essence, it was a matter of adapting to the times, and Thomas Cook didn’t keep up.

“TC was not geared up for the aggressive market we see today and that, above all else is why it failed.”

Despite this, Saj Ahmad had a positive outlook for the future. 

“The writing has been on the wall for many years – and while its worrying for passengers stranded all over the place – the market will bounce back and allow better airlines to capture the trade space vacated by TC’s demise.”

Indeed, if there has been a winner from all this chaos, it has been other travel companies that saw their stock prices shoot up as investors flocked to them.