What we learn from Thomas Cook’s collapse about banking on goodwill

At the time of its collapse in September 2019, Thomas Cook employed 22,000 people across 16 countries, 9,000 of whom were based in the UK. The group had annual sales of around £9bn, and 19 million customers a year.

The company’s collapse left around 150,000 holidaymakers stranded abroad, meaning a huge repatriation operation was required.

While its employees and customers faced immediate challenges, Thomas Cook’s issues had been building for some time.

A confluence of factors came together to seal the company’s fate – financial, social, political and, oddly, the weather.

Alongside poor weather, the company had become more vulnerable to competition from low-cost airlines and online travel agents, as well as political unrest in some of its most popular destinations, including Greece, Egypt and Turkey.

Not only that, but customers had become increasingly comfortable with putting together their own holiday plans, without relying on travel agents or packages.

Much of the value of the business was perceived to be in its brand and the loyalty of its customers, accounted for in its books as goodwill.

The firm had very little in the way of tangible assets, such as planes or hotels. So, when customers left for online competitors or to book their own flights and hotels, the value of the firm plummeted. In May 2019, it reported a loss of £1.5bn.

That was starkly reflected in the company’s share price. In summer 2018, shares in Thomas Cook were trading at just below 150p. In the months leading up to its collapse in 2019, analysts at Citigroup described its shares as “worthless” after a series of profit warnings.

As a result, it began to look for additional investment to ensure its survival. It hoped to seal a rescue led by its largest investor, Chinese conglomerate Fosun, but its creditor banks issued a last-minute demand that the travel company find an 
extra £200m.

It failed to do so, and its fate was sealed, sparking the largest repatriation of British citizens 
in peacetime.

A key lesson to take from Thomas Cook’s demise is changing products to meet demand.

Unlike other businesses that feature on this page, Thomas Cook did adapt well to online sales initially, but it was already operating with slim profit margins and heavy competition.

Not only that, but it was operating a lot of high street outlets, which incur rental, staff and other overheads, which it could not sustain.

With Brexit on the horizon at the time it called the administrators in, it was unable to stimulate as much interest in foreign travel as it had previously, while its costs remained stubbornly high.  

Calum Fuller Calum Fuller is editor of AT and 20 magazines. He's previously served as editor of Credit Strategy, assistant editor Accountancy and began his career at Accountancy Age..

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