Thomas Cook: What’s gone wrong at the holiday firm?

Swimmers on a beach in SpainImage copyright Getty Images

Travel firm Thomas Cook has come a long way since its formation in rural Leicestershire during the early Victorian era.

Founded in Market Harborough in 1841 by businessman Thomas Cook, the fledgling company organised railway outings for members of the local temperance movement.

Some 178 years later, it is a leading global travel group, with annual sales of £9bn, 19 million customers a year and 22,000 staff operating in 16 countries.

Profit warnings

Thomas Cook has had a chequered history, including being nationalised in 1948 – when it became part of the state-owned British Railways – and owning the raucous Club 18-30 youth brand, which it recently closed after failing to find a buyer.

However, just as the travel world has progressed from temperance day trips, so the modern business and leisure market is also changing, and at a far faster pace than in previous decades.

The firm is being buffeted by a number of factors: financial, social and even meteorological.

Image copyright AFP

Last summer, shares in Thomas Cook were trading at just below 150p. Now, after the company’s third profit warning in less than a year, the price is now just a fraction of that.

Worse still, analysts at Citigroup bank have described the travel firm’s shares as “worthless”.

‘A lot of disruption’

Last week, Thomas Cook warned of “further headwinds” for the rest of the year after reporting a £1.5bn loss for the first half of the year.

Some £1.1bn of the loss was caused by the decision to write down the value of My Travel, the business it merged with in 2007.

It said there was “now little doubt” that Brexit had caused customers to delay their summer holiday plans.

Image copyright PA
Image caption The UK heatwave has been blamed for falling summer bookings at Thomas Cook

“The fact is that it is a pretty structurally challenged company,” says Stuart Gordon, an analyst at investment bank Berenberg. “As consumers we are moving online, it is causing a lot of disruption for them.”

He says holidaymakers are using the likes of AirBnB and Ryanair to put together their own holidays and no longer buy traditional package deals.

“I am not saying the package holiday industry is dead, but I do think they will continue to face challenges,” Mr Gordon says.

Airline sale?

As well as weather issues, and stiff competition from online travel agents and low-cost airlines, he notes there are other disruptive factors, including political unrest in countries such as Turkey.

Thomas Cook has closed 21 of its stores, its currency arm Thomas Cook Money is under review and more “cost efficiencies” are planned.

It says more of its 566 stores could close as leases end, and that 150 roles will be cut from its Peterborough head office.

The firm is also looking to sell its airline and says it has received “multiple” bids.

Image copyright PA
Image caption Thomas Cook’s airline has 94 planes

Thomas Cook’s rival TUI, which owns the Thomson brand, is less reliant on package holidays and has diversified into the cruise and hotel businesses. “So they are not just reliant on package holidays,” Mr Gordon says.

‘Brand value’

Simon Calder, travel editor of the Independent, says Thomas Cook is the strongest brand name in travel.

“They have great value in their heritage, brand recognition, and they also put together pretty good holidays. But for the past 25 years they have taken their eye off the ball and failed to spot trends, mainly the emergence of no-frills travel and what it has meant for people’s holidays.”

Image caption A 2016 recreation of the first Thomas Cook outing in 1841 celebrated the firm’s heritage

He says that as well as rival TUI thriving, Thomas Cook has also been hit by the rise of budget airline Jet2 – which has become the second-biggest tour operator: “They have picked up a lot of the bread and butter holiday market that Thomas Cook used to have.”

Mr Calder says that Thomas Cook is “not a complete basket case” and that its business in Germany and Scandinavia remains healthy.

“But its share price is embarrassing,” he said. “The market seems to be taking the view that Thomas Cook will stay in business, but that there will be a funding call to investors.

“A lot of people emotionally feel they have a share in the ownership of Thomas Cook – it was nationalised once, after all. It is a shame to see such a great brand name held in such contempt by the market.”

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