Yikes! Thomas Cook Flops: But I Told You So Weeks Ago!

Two months ago I wrote a report about Thomas Cook’s impending failure. Everybody in our industry argued with me. They said investors and the government would never allow the company to flounder. Now the news is, Thomas Cook bosses snagged a cool £50,000,000 while the travel company was heavily indebted. Here are some more nails in the coffin of budget travel behemoths.

I’ll not profess to me being a prophet, but it’s ironic the title of my most recent Thomas Cook story “Thomas Cook-Greece Meetup May Signal “Funny Business” As Usual” seems to be wizard-like. Thomas Cook CEO Peter Fankhauser meeting with incoming Greek Tourism Minister Haris Theoharis in July seemed a desperate move, given the beleaguered tour company had hit rock bottom on the stock market days before. Now, 150,000 clients looking for a way back home from vacation after being stranded by the British company punctuates the story of a company that just made one bad decision after another.

But Thomas Cook going bust is only the beginning. Cash strapped and indebted companies throwing good money after bad opening up places like Casa Cook here on Crete, it reveals the mediocrity of thinking in the hospitality world. Greece is a microcosmic window into what happens when the middlemen take over and undersell travel experiences. Budget travel should be done with a backpack or staying at Aunt Bessie’s or Uncle George’s Airbnb.

Fankhauser and his colleagues at Thomas Cook must have seen the writing on the wall back in 2018. This is when the company, along with Swiss hotel development group LMEY Investments, raised €40 million to invest in hotels around the Mediterranean alongside Greece’s Piraeus Bank. Instead of paying down his company’s staggering debt, Fankhauser seems to have been smoking too much of his own product.

Now, Zoe Drewett at Metro UK frames the ludicrous situation using comments from Prime Minister Boris Johnson and others, and by revealing the shell game Thomas Cook was actually running this way.

“The travel agent had about 550 high street locations across the UK, but it leased its planes, rented its shops and acted as a broker with third-party hotels and cruise ships, meaning it had minimal assets.”

No assets. So, Peter Fankhauser and his colleagues at Thomas Cook were not in the travel business, they were in the management of a travel business on paper. Or as it appears, the mismanagement of paper travel business. This Fast Company story tells the tale of a company that was doomed years ago unless the government stepped in eventually. Now that TC has crashed and burned, perhaps destinations and the hoteliers these companies contract with will wisen up. Thomas Cook is only the tip of a gigantic mismanagement iceberg.

Cheap holidays should be a part of the mix, in the same way, companies like Thomas Cook should be part of the mix of travel options. The problem is, greed and unsustainable expansion. Thomas Cook lit the candle at both ends trying to cut costs by not really owning anything, and by driving profits of hoteliers down to nothing. Now a lot of hoteliers and hospitality people are panicking. This is on account the tourists the company promised may or may not be arriving next season. Of course, companies like Germany’s TUI will go nuts advertising to try and take Thomas Cook’s share, but their business is not much steadier than TC’s.

TUI stocks took a jump when the news of Thomas Cook’s demise hit on Monday. However, the stock is still down almost 34% the last year even with this boost. The company currently has €2.12 billion in outstanding debt, with €2.23 billion in cash and other assets to balance this. The problem with TUI, as was the case with Thomas Cook, is how the company uses debt. And TUI is not looking good in this respect. The problem is in the balance sheet and in the German company’s capability to pay back the debt. This Yahoo! Finance report via Simply Wall Street from August reveals how TUI liabilities totaled €10.2b more than its cash and near-term receivables coming in. These liabilities are due within the next 12 months, so you see part of the problem.

Granted, TUI is in a lot better shape than Thomas Cook was where earnings are concerned. But the same trend that sunk Thomas Cook can easily put TUI into a situation where the company needs recapitalization. If there’s a hear wave in Germany next Spring and Summer, or some other kind of jet TUI flies runs into mechanical grounding issues, 2020 may see another stranded passenger catastrophe, only bigger. Remember, like Thomas Cook, TUI blamed profit losses on the hot summer. And did you know TUI just canceled vacations on account of the German company used some Thomas Cook flights in their packages? Talk about a looming mess.

Finally, the issue for Thomas Cook and for TUI is not so much about their potential in the market, it’s about running themselves out of business and profit. Cheaper and cheaper holidays lead to everyone losing, including the traveler. These huge travel companies are running vacations like Walmart runs a blue light special on last year’s electronics. Greek vacations, even Turkish ones, cannot be all about budget flights and stays. Pretty soon there will be nobody to change the linens in Istanbul and Athens. Unless TUI plans on importing housekeeping people from China, that is. Bottom line, the margins will be too small for everybody eventually. Somebody at TUI needs to start thinking about another growth model.

I won’t get into the booking mix in this report. You can read about OTAs and direct bookings balance here. The channel cost and how TUI and other travel agencies affect the bottom line is also a topic for another discussion. What seems abundantly clear with the failure of Thomas Cook is the vulnerability of businesses that are out of balance bookings wise. It remains to be seen how hoteliers will compensate for this shakeup in the industry will play out of the fall and winter. I expect some hair on fire marketing and advertisement from TUI and from other booking channels.

Stay tuned.