• 27 September 2019
  • Accountancy

Thomas Cook - Who's to blame?

It would have been difficult to miss the news of Thomas Cook falling into administration this week. The 178 year old Manchester based travel firm announced in the early hours of Monday that rescue talks had failed, leading to the subsequent clear up operation now underway.

Although major British highstreet fixtures falling victim to administrators certainly isn’t anything new, Thomas Cook has created shock waves through the market, the highstreet, media, and politics. 

Unlike their counterparts, the company's collapse has not only affected jobs, including 9,000 UK employees, but has triggered the largest ever peacetime repatriation for the UK, being coordinated by the Civil Aviation Association (CAA)[1]. The CAA in turn is working closely alongside the Foreign Office and local embassays, as seen this week in Cuba[2].

However, in the wake of the admittedly organised chaos, the question is raised of how this has happened and, ultimately, what or who is to blame?

There’s scarcely a business, regardless of size, in the UK that’s not going to be, or being affected by Brexit. Yet Thomas Cook’s relationship and dependency on Europe for its trademark package holidays has undoubtedly played a crucial role in its weakening and gradual collapse.

With the pound struggling to compete as uncertainty grips UK politics, the looming, though still uncertain, ‘leave date’ has been linked to falling consumer confidence, causing some to delay and scale back holidays. The pound’s exchange rate has also led to European holidays not being as financially viable as they once were, causing consumers to cut down, or even abstain altogether[3].

Thomas Cook as a provider has also faced a drastically changing competition market over recent years. The rise of Airbnb, to name one, has taken on a key role in shifting consumer habits away from the traditional package holiday purchased from a highstreet store.  

Growing over the last 11 years to having 5 million listings in over 191 countries, Airbnb demonstrated the growing trend to not only book directly, but tailor a trip as a cultural experience in a way that Thomas Cook and its competitors have failed to compete with. This is seen through their growth in the 5 years between 2013 and 2018 from 9 city regions with at least 100,000 Airbnb guest arrivals, to over 350 city regions with at least 100,000 guest arrivals[4].

However, as with any business collapse, the management of the firm must also be called into question; arguably even more so in one that’s dependant on a seasonal cycle of work.

An unusually hot summer in 2018, political unrest in Turkey (one of its key locations), as well as spiraling debt, created an environment that ultimately lead to collapse of rescue talks. Despite securing additional £900m in funding from Chinese firm Fosun, demands to obtain a further £200m by its banks were the point that tipped the firm to the administrators. As the events of this week unfolded, former chief executive Peter Fankhauser revealed that balance sheets were as much as £3.1bn short[5]. This was coming at the end of their ‘busy’ period -  it seems that the management had backed the firm into a financial corner.

Given all of the various factors at play, it would be premature to pin the blame solely on one factor so, for now, it would be best to await The Insolvency Service’s investigation to see the full extent in which each possible reason contributed.

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[1] https://www.independent.co.uk/topic/ThomasCook

[2] https://www.bbc.co.uk/news/business-49823225

[3] https://www.theguardian.com/business/2019/jul/30/pound-holidays-prices-sterling-brexit

[4] https://press.airbnb.com/the-emerging-markets-powering-airbnbs-global-growth-report/

[5] https://www.theguardian.com/business/2019/sep/25/thomas-cook-balance-sheet-deficit-3bn-before-collapse

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Alice Cahill is a Recruitment Consultant in the Accountancy Division at Harvey John.

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