Published on 23 September 2019
A business expert from the University of Sunderland believes a perfect storm of factors led to the collapse of one of the UK’s most trusted companies.
With efforts well underway to bring Thomas Cook’s 155,000 British tourists home after the travel agent collapsed on Monday, attention now turns to how the company landed in its current position.
The UK's Civil Aviation Authority (CAA) is co-ordinating the repatriation of the tourists, the biggest in peacetime, after the tour operator "ceased trading with immediate effect".
Thomas Cook's administration puts 22,000 jobs at risk worldwide, including 9,000 in the UK.
Professor Lawrence Bellamy, Academic Dean, Faculty of Business, Law and Tourism, at the University of Sunderland, says problems with the company have been evident for some time.
He said: “After raising revenue levels from 2016 to 2017 - but realising marginal profits - Thomas Cook cited the exceptional summer as a reason for their poorer sales and resulting losses in their 2018 annual company report.
“The company had falling margins from 2015 and had increased its debt position greatly in 2018 after reducing in previous years.
“For such a longstanding giant of the industry then the capability to absorb the issue, restructure to take out cost and ensure that the company was more robust going forward, should have been given.
“However, further issues arose including the weaker pound hitting procurement, consumer confidence, a flat package holiday market, increasing aircraft operating costs and different business competition models. These all tested the resilience of an organisation which, due to timings of payment and scale of operations had a built in cash-flow advantage and procurement power.
“When times become challenging the ability to change greatly increases the chances of survival and dealing with the overhead of aircraft fleet, sales outlets and hotels, saw the company with a large asset base and all the costs which come with that.
“Given the high revenue and operations of the group then it is likely that elements of the company will be acquired and operated by others in the future, for a reduced cost.
“In the meantime the workforce stretching over more the 20 countries and totalling over 20,000 employees is left without income and thousands of holiday makers with Atol, their insurance or credit card company to get them home and recoup their losses. This is far more substantial than just the loss of a trusted brand.”
The government has chartered 45 jets to bring customers home, in an undertaking dubbed Operation Matterhorn. The size of the fleet will make it temporarily the UK's fifth-largest airline.
Operators including easyJet and Virgin have supplied some aircraft, with jets coming from as far afield as Malaysia.
All Thomas Cook holidays are now cancelled and customers will need to seek compensation via the government's Atol scheme, or from their credit card or insurance companies.