After a 178-year history Thomas Cook (TCG) has gone into liquidation after talks regarding funding terms found no resolution. The failure of the holiday company has led some to wonder which other operators could be susceptible to similar problems, and which might benefit from the opening of capacity in the market.
The collapse of Thomas Cook stems from a series of bad deals. The 2007 “merger of equals” with MyTravel appears ill-advised with the benefit of hindsight, as the group was forced to take a £1.1bn impairment on historic goodwill within its latest half-year figures, reflecting a deteriorating trading environment. Then, in 2010, the merger with Co-operative Travel added 1,400 retail locations at a time when consumers were increasingly booking online.
This is not the only time Thomas Cook has faced collapse, the first time being in 2011 when its hefty debt pile was also called into question. The company’s capital structure continued to look stretched, with net debt of £1.25bn and negative equity of £1.35bn when it reported its most recent half-year results. Like other travel companies, Thomas Cook faced the difficulties of weak sterling, Brexit uncertainty and warm UK summers, which discouraged travellers from booking overseas holidays. But its leverage was the determining factor in its demise. Lenders became wary of Thomas Cook’s position in a tough market and began to demand more upfront payments, prompting the travel company to seek an additional £200m to make it through the winter season, on top of the £900m recapitalisation it was already negotiating, which ultimately proved impossible.