As the biggest repatriation in peacetime history gets under way, so too will the blame game, with questions being asked as to why Thomas Cook was allowed to go under.
After all, this was a business for which a £900m recapitalisation had been painstakingly agreed – in outline – weeks ago between the company’s lending banks and bondholders and by Fosun International, Thomas Cook’s biggest shareholder.
Sign-off was still required from other parties, in particular the Thomas Cook pension schemes, but it felt as if an agreement was possible.
Thomas Cook boss apologises for ‘devastating’ collapse
In the very short term, fingers will no doubt be pointed at the company’s dozen or so lending banks, including Royal Bank of Scotland and Lloyds Banking Group, whose late demand that Thomas Cook find a further £200m to tide it over the winter months – when tour operators face cash outflows rather than inflows – proved insurmountable.
The banks, for their part, were today arguing that they had “been extremely supportive stakeholders, including through two periods of financial stress and have stood behind Thomas Cook over the past 12 months, a period when the group saw cash outflows of around £1bn”.
The lenders have also argued that Thomas Cook has frequently revised, during the last six months, its future financing requirements.
Longer term, however, the collapse of the world’s first tour operator lies squarely with the people who were running the company more than a decade ago and, in particular, Manny Fontenla-Novoa, the-then chief executive.
It was he who embarked on a merger with MyTravel, the struggling package holiday firm previously known as Airtours, in 2007. That business subsequently turned out to be far weaker than expected and, in May this year, Thomas Cook was obliged to write down the value of the old MyTravel business by some £1.1bn.
That mistake was compounded when, in 2010, Thomas Cook agreed to merge its high street travel agents with those of the Co-op. This deal eventually evolved into an effective takeover of the Co-op business – saddling Thomas Cook with a huge chain of high street travel agents just as the business was migrating online.
The upshot was that Thomas Cook, earlier this year, admitted that it had debts of £1.6bn. The annual interest payment on that debt was £150m. That was £150m that Thomas Cook had to come up with each year before it could even think about investing money in its business, let alone making a profit.
That debt proved to be a millstone around the company’s neck when faced with nimble competitors such as Jet2Holidays and the daddy of the sector, TUI, whose stronger balance sheet enabled it to invest heavily into fast-growing activities such as cruises.
Thomas Cook’s current management, led by Peter Fankhauser, came up with some neat ideas of their own. They launched a boutique hotel business, Casa Cook, which won rave reviews from both customers and the wider travel industry, but unfortunately with a debt millstone around the company’s neck, this popular concept could not be rolled out on the scale Mr Fankhauser hoped.
There was also an element of bad luck – the business was hit in recent years by terrorist incidents in some of its most popular destinations, such as Tunisia and Turkey, which inevitably deterred customers.
‘We lost our holiday, we’re gutted’
It took a while for business to recover in those countries. The scorching summer in 2018 deterred many British tourists from holidaying abroad. And, inevitably, the uncertainty over Brexit this year gnawed away at customer confidence. This latter factor was compounded as it became clear that Thomas Cook was involved in negotiations to restructure its debt – which again may have put some customers off booking with the company.
And, above all, there was overcapacity in the aviation sector, as shown by the collapse in October 2017 of Monarch, the UK’s fifth-largest airline. The woes afflicting the sector have been such that even Ryanair and easyJet, the two biggest players in the low-cost travel sector, have not been immune. Both have cut capacity in response.
CAA: It’s a very sad day for Thomas Cook
Some will suggest that there has been something wrong at the heart of Thomas Cook for a while.
That was certainly implied by the company’s response to the deaths of two children, Bobby and Christi Shepherd, who were killed by carbon monoxide fumes emanating from a faulty boiler while on a Thomas Cook holiday in Corfu in 2006.
It subsequently emerged at an inquest into the children’s deaths, held in 2015, that neither Mr Fontenla-Novoa or his successor, Harriet Green, had apologised to the children’s parents – probably on the advice of lawyers. It was only when Mr Fankhauser became chief executive that the company sought to make amends. He met the children’s parents personally to express contrition.
As the blame is apportioned, the government must also take a share.
Not for failing to come up with the £150m for which, overnight, Boris Johnson has confirmed it was asked.
No-one realistically expects taxpayers to support tour operators, even though Thomas Cook’s 22,000 employees might reasonably point out to the vast sums of taxpayer support that have been funnelled into supporting steel-making, an industry that employs only a few thousand more people.
But Theresa May’s government, after the collapse of Monarch, looked into the possibility of changing the insolvency laws to enable collapsed airlines to continue trading for as long as was needed to bring home stranded customers.
It failed to do so with the parliamentary process consumed with Brexit – but, had that change in the law been made, it would have made winding up Thomas Cook’s affairs considerably easier and a lot less costly for taxpayers, who now face a £100m bill for repatriating British holidaymakers.
The effectiveness of the UK’s efforts in that regard will now face scrutiny in terms of how they measure up against those of other countries. Thomas Cook was a big pan-European business and, while there are 150,000 British customers stranded overseas, there are more than 600,000 of its customers dotted around more than 50 destinations – many of whom are German or Scandinavian holidaymakers.
Longer term, when the dust settles, Thomas Cook’s demise apart from the loss of one of the UK’s best-loved consumer brands and 22,000 jobs – will result in less choice for customers and, quite possibly, an increase in the cost of package holidays next summer.