Cookie Consent by TermsFeed The Speaker

A Analysis - With No Bias & No Jargon

Thomas Cook on verge of collapse: is Brexit to blame?

The UK's oldest tour operator, Thomas Cook is on the verge of collapsing.
 
On Friday, the struggling company confirmed it needed to find funds of £200m to fill a financial black hole. On Friday evening, it was reported that hopes were fading away of securing new funding. Should the company collapse, it would see around 22,000 jobs at serious risk, around 9,000 of those in the UK. It would also see the triggering of the largest evacuation of Britons since Dunkirk, with around 165,000 customers thought to currently be overseas with the Thomas Cook Group.
 
So, how did this mess all unfold? Well, the easy answer would be to say Brexit is the main cause of the problem. However, that simply isn't true. Thomas Cook has experienced problems for some time, long before the EU Referendum was even announced. Thomas Cook can be said to have faced problems from four fronts - those being financial, social, political and meteorological.
 
  • Weather issues, volcano eruptions and other meteorological events have impacted the bottom line of many airlines, including Thomas Cook due to delays and cancellations and the compensation that comes with these.
  • The rise of budget airlines and online travel agents have increased competition in the market.
  • Social trends have also been changing, with more Britons booking flights and holidays separately, rather than through package holiday providers such as Thomas Cook.
  • Thomas Cook has also had to adapt to changing political climates in the UK and around the world - for example, terrorist attacks such as in Tunisia have led to flights being temporarily stopped for significant periods, resulting in lost revenue for the travel company.
  • And of course, Brexit is also a political issue that has impacted Thomas Cook - costs have likely increased somewhat due to exchange rate changes and in some cases these will have been transferred to consumers, putting more people off travelling abroad and resulting in a new trend of staycations. In May 2019, Thomas Cook blamed Brexit uncertainty when it announced a loss of £1.5bn. According to reports, 'the tour operator claimed UK customers were delaying their holidays for the summer because of the political deadlock.'

 

These problems outlined above are not though exclusive to Thomas Cook. These problems have arguably caused issues for most tour operators and have required adaptation in a changing market. Some tour operators and travel groups have not managed to successfully adapt to the changing market, some of which have now collapsed.

Monarch Airlines ceased operations on 2 October 2017. Founded in 1967, the airline was a British charter and scheduled airline. It later became a low-cost airline in 2004 before abandoning charter flying completely. At the time of its collapse in 2017, it was the biggest airline collapse in UK history, leaving nearly 110,000 passengers and holidaymakers stranded. The collapse came after a series of events for the company, including in 2014 where the airline embarked on a heavy redundancy exercise, the downsizing of its aircraft fleet, the closure of its East Midlands Base and the company's sale to Globus Travel Group. In 2015, Monarch carried 5.7 million passengers, down 19% from 2014. Demand for tickets on Monarch's major holiday routes continued to fall though because of political events in Syria, Egypt and Turkey. Terrorism in North Africa, a military coup in Turkey caused major problems for the airline, as did Brexit causing the depreciation of the pound, leading to increased costs. Heavy and fierce competition in the market also meant Monarch struggled and ultimately failed to stay in the air.

Just this year, Superbreak and LateRooms announced they had gone into administration. The news left 200 people out of jobs and affected around 53,000 customers. While not an airline or large tour operator, the company also faced financial woes and faced heavy competition when trying to drive up sales.

While problems have faced many tour operators and airlines, whether they have survived has often come down to whether they can adapt. Jet2Holidays has seen revenues continually rise over recent years, and the company, owned by Dart Group PLC has also reported increased profits for 2019 compared to 2018. The UK's biggest tour operator, TUI has warned on profits twice this year, facing a difficult period following the global grounding of the 737 Max aircraft and the uncertainty of Brexit leading to lower sales. However, TUI's financial performance appears much more healthy than its rival Thomas Cook, and it has been focusing on increased sales of experiences in order to offset weakness in the air - the company has also seen increased sales for its ranges of cruises. Overall, TUI delivered 'double-digit earnings growth' in the financial year 2018 for the fourth consecutive year, according to the group.

So, yes, Brexit has been impacting airlines and tour operators, but it can't really be blamed as the main cause for the collapse of some of the most well-known names in the UK's travel industry. The travel and tourism industry is continually adapting, so it has been up to tour operators and their management to adapt to social and political changes in order to stay in the air and then thrive in what have been difficult times for the sector. Even some of the better financially performing airlines have issued profit warnings this year, including Ryanair.

It has been reported that Thomas Cook has requested a government loan this week to help save the company, with the company arguing that it would cost less to save the company than for it to collapse and the government to bring home all of the company's customers currently abroad in what would be the largest repatriation effort since the Second World War, costing the taxpayer an estimated £600m. A government loan on commercial terms is not unheard of, but it is thought to be unlikely.

Banks including RBS and Lloyds have insisted that the company comes up with new contingency funds ahead of the winter months. Brian Stutton from the British Airline Pilots' Association (BALPA) has called on the government to help Thomas Cook;

“It is appalling that banks that owe their very existence to handouts from the British taxpayer, show no allegiance to a great British company, Thomas Cook, when it needs help. This puts 9,000 good quality U.K. jobs needlessly at risk and puts an iconic British brand in jeopardy.

"The Government has a say in this, owning one of the key banks and still with huge influence over the other. RBS and Lloyd’s should be told by the Prime Minister to support Thomas Cook.

"If Thomas Cook goes into administration it will cost the taxpayer as much to repatriate holidaymakers as it would cost to save Thomas Cook; the Government sat on the sidelines wringing its hands when Monarch Airlines was let down by its financiers, this time Government needs to get a grip and do its bit to save Thomas Cook.”

Some though fear that a government loan may just delay the collapse of the tour operator, with Thomas Cook having experienced financial problems frequently in recent times.

Talks to sell part of the Thomas Cook Group in order to raise funds have so far failed and without a large cash injection and it happening very soon, it could all be over for the UK's oldest tour operator.

 

If you are due to travel with Thomas Cook, the latest information can be found at https://www.thomascook.com/travel-updates/

Support The Speaker

The Speaker is run by a global team of expert volunteers committed to making political news accessible for the wider public. If you liked this article, please consider making a small contribution to support the future operation and work of The Speaker.
inspirenextgen.png
right-graphic.png
want-to-see-more-articles-like-this_-4.png

Jobs in Politics

Follow Us On Social Media!

For the latest top political news, features and content, follow us at @speakerpolitics.