Thomas Cook Failed To See And Act On Emerging Changes

Last week the curtains came down on Thomas Cook, a British global travel group which has existed for almost 178 years. The liquidation left thousands of passengers stranded in various destination and 21,000 people jobless.

The main reason given for the company’s collapse and subsequent entrance into compulsory liquidation, was because it had failed to secure funds from its bankers to pay its losses that had accumulated to £1.5bn. According to a statement issued by the company during the middle of this year, part of the losses were as a result of the political uncertainties surrounding Brexit which placed enormous pressure on the sterling pound, making it expensive for British citizens to travel abroad for holiday.

It also blamed other factors in the macro-environment such as the unusual heatwave that struck Europe last year and political instability in its key destinations in the Middle East and parts of Africa. Also, the Guardian noted other factors such as high prices of jet fuel and hotels pushing up costs as having contributed towards the collapse of Thomas Cook.

To deliver itself from financial woes, the company came to an agreement with a Chinese investment company, called FOSUN international. According to the deal, FOSUN was to own 75% of Thomas Cook’s tour division and 25% of its airline division, all for £450. An additional £200m was to come from lenders among them Royal Bank of Scotland and Lloyds.

However, after long periods of negotiations, the lenders refused to give Thomas Cook the much needed £200, since they had already provided it with a £675m overdraft. Further attempts to have the government bailout the company were rejected by Prime Minister, Boris Johnson, who warned that bailing out the firm would have set a dangerous precedent. He also added that there was a need for firms to face the ‘moral hazard’ of knowing that they could not expect to be bailed out by the state. This effectively led to the collapse of, Thomas Cook, one of the world’s top travel company’s.

However, according to experts, the reasons for Thomas Cook’s loses were much deeper and could have been corrected if the company had acted in time. They ranged from mismanagement to failure to adapt to emerging changes. In 2018 Audit firm Ernest Young warned the company to stop an “accounting method that made its profits appear larger, and which gave leeway for bonuses of its top executives’ to be boosted. This was when the company reported a profit of £250m before tax, and wrote off £150m costs as exception, while reporting an operating profit as £97m.

Some of the company’s top executives have already been accused of pocketing a total of £47 million over the last ten years as the company’s debt continued to grow. Among those who questioned the hefty bonuses awarded to the top executives was Prime Minister, Boris Johnson, who said: “I have questions for one about whether it’s right that the directors, or whoever, the board, should pay themselves large sums when businesses can go down the tubes like that.”

But the biggest mistake Thomas Cook did was to become so comfortable with its brand that it failed to see and adapt itself to the emerging changes in the environment. Air travellers have become less loyal since the internet has given them a platform to compare tickets and review services. In an environment where all travel companies offer the same services, it is only through understanding customer needs then adapting to meet them effectively that a company will be able to have a competitive advantage over its rivals. This will enable it to maintain its customers and attract new ones thus boosting revenue.

Adapting means an organisation is developing and deploying its resources to sustain and enhance its competitive advantage, and configuring its costs and assets to march the changes. While many travel agencies realised how the internet has revolutionised the buying process and adjusted their models to reflect changing times, Thomas Cook failed to act. For example, when customers moved from high street travel agencies to the internet, Thomas Cook continued to operate travel agency shops in high streets. As the Guardian put it, “An old business model, with expensive to run high-street branches, could not compete in the age of the internet – when customers try to find their own holidays online.”

Forbes blames the internet and sharing economy as main factors saying, “in the age of the sharing economy, Thomas Cook continued to own “550 travel agency shops, 200 hotels with 40,000 rooms, and 105 aircrafts,“ adding that even its branded currency-exchange shops at airport “became increasingly less relevant, as many travellers changed less cash and used convenient, foreign transaction fee-free credit cards.”

The American Bureau of Labour Statistics notes that the use of the internet for booking trips and researching holiday destination is not going to stop any time soon, and only travel agents who deliver unique customer experiences by specialising in specific destinations or targeting specific travellers are the only ones who are likely to survive.

According to Forbes “this could mean focusing on travel to a particular area, working with a particular clientele or offering a particular type of experience (how about a destination wedding?) Such advisers can and do charge fees for their knowledge, attention to detail and concierge-level service.“