Thomas Cook took the wrong route and packed too much debt

Thomas Cook has gone bust because it was a badly run business which travelled in the wrong direction and took too much baggage. In the words of one former executive, it was an “analogue business in a digital world.”

Put simply, Britain’s oldest tour operator has been stuck in a world of Sixties-style mass-market holiday packages, travellers cheques ( which it created)  and dull high street branches that looked as though they too were stuck in the Sixties.

When Thomas Cook went into liquidation earlier today it had no cash in the bank, no serious tangible assets only intangibles ones, about £1bn in debt and a £500m pension fund deficit.

Even if Thomas Cook had pulled off its emergency recapitalisation plan – which included the possibility of a rescue by China’s Fosun International, it would still have been on life support. Fosun, run by Guo Guangchang, a billionaire regarded as China’s Warren Buffett, must have known that too.

The nail in the coffin of the rescue plan – which would have required banks to write off £1.7bn of debt – was that it was unable to negotiate an immediate £200m lifeline from its RBS banker. And you can’t blame them for saying no.

The truth is Thomas Cook has been living through a near death experience for years. It has never recovered from a misjudged merger in 2007 with MyTravel (Airtours and Going Places) and has never adapted to the onslaught of internet booking.

More pertinently, the Thomas Cook executives – more of them later – never had the nous to either adapt to the shift towards internet booking or take itself upmarket as so many new niche, specialist  travel agents have done.
As the horrors of internet booking and low-cost air travel are slowly beginning to show, there is a big appetite for organised and specialised crafted holidays. And for old fashioned paper tickets given to you in smart paper wallets.

People have certainly not stopped going on holiday. Nearly two thirds of Brits went abroad last year, up from 57 % the year before. But habits are changing too with most travellers now preferring city breaks to beach holidays, Thomas Cook’s main fare.

So, there is no surprise it has been losing money for some time, making a loss of £1.5bn in May this year and writing off more than £1bn because of the MyTravel merger. It was one of those deals that Thomas Cook promised would turn it into a European colossus – and take on the web upstarts.

Instead, it brought Thomas Cook to the ground. The shares nearly halved over a few years. It so happened that MyTravel had made a profit only once in the previous six years.

Debt has been Thomas Cook’s addiction and it’s dowfall. It’s ironic considering how the travel firm was founded by Leicestershire based cabinet-maker, Thomas Cook, taking 500 teetotallers to a temperance rally to Loughborough in 1841. He surely would not have approved of such an addiction: since 2011 the firm has paid out more than £1.2bn  interest charges. That is the equivalent to a quarter of the money it charged for the 11m holidays sold every year going to the banks.
Hardly a good business model. Which is why calls from Labour’s front-bench to bail-out Thomas Cook are absurd, if not downright stupid. Why throw good money after bad?

The government, through the Civil Aviation Authority, is already having to bail out and fund bringing home the 150,000 holiday makers holidaying overseas in what is being described as the biggest ‘peacetime’ repatriation.’ That is since the last one, when Monarch went bust.

Oh how we Brits like a little melodrama. What is tragic is that 21,000 people will be losing their jobs as a consequence of Thomas Cook’s management failure. Around 9,000 of them work in the UK – over 1,000 alone near Peterborough in Cambridgeshire.

Fortunately, the Pension Protection Fund has already said that all defined pensions should be paid. Now the Thomas Cook bosses – and rival firms – should do everything they can to help employees find alternative work
.
Chief executive, Peter Fankhauser, and his team, should also consider handing back some of their bonus payments into a new fighting fund. Even when it was clear a few years that Thomas Cook was in trouble, Fankhauser and his colleagues were still taking whopping salaries and bonuses. Mr Thomas Cook would not have approved of that either.