Thomas Cook: tourism experts explain the travel company's collapse
News•Business• 27.09.2019 • Anna Hillingdon/John Fletcher/Bournemouth University
End of the line for Thomas Cook, the package holiday company, which announced compulsory liquidation measures on 20 September 2019
The shock of Thomas Cook’s collapse may create reverberations that travel much further than the 150,000 holidaymakers who are reportedly stranded overseas or the many people who have already paid for travel with the company. The impact of Thomas Cook’s failure is even more stark because the company’s 19th-century founder was the father of package holidays, taking the first group of travellers abroad in 1855.
On the bright side there is a scheme in place to help them. When tourists buy their holiday as a package the law requires that it is protected. ATOL is a UK scheme, which was first introduced in 1973, that covers most air package holidays and some forward booked flights sold by UK operators.
The ATOL scheme currently provides protection for more than 20m travellers each year. The benefits of ATOL are far reaching and include bringing stranded tourists back to the UK if the company they bought their package from goes into liquidation while they are overseas or will compensate or find alternative packages if the company fails before the traveller goes overseas.
The term package is important because if a traveller purchases, say a flight only, from a travel agent or directly from an airline and is issued with a valid ticket, this is outside the scope of ATOL. So independent travellers (people who book the different components of their holidays would not be covered by ATOL unless the flight or hotel element explicitly states that it is ATOL protected). ATOL is funded through a levy on travel businesses of £2.50 per traveller and it is operated by the UK Civil Aviation Authority (CAA) regulator and the funds are held by an organisation called the Air Travel Trust.
The ATOL protection was introduced in response to several major travel business failures, which left British travellers stranded overseas, but to date has not had to cope with a failure on the scale of this Thomas Cook one. The major task of organising the repatriation of so many people, code name “Operation Matterhorn”, has meant that the government (through the CAA) has had to hire planes from as far away as Malaysia to help transport not just the holidaymakers but also the thousands of staff who are also stranded overseas. This is the largest peacetime repatriation the UK has ever undertaken, and it is inevitable that there will be delays and problems during the operation that is being hastily put together.
Although the company’s products are ATOL protected there are limits to the cover and to many people who had planned their vacations, the financial costs are only a part of the problem. For instance, there are people who were travelling to get married, attend funerals or other significant functions who may not be able to easily make alternative arrangements and if events are cancelled there will be costs not covered by ATOL.
As with most things, there is rarely a single cause for such a big failure. This can be seen as a perfect storm for Thomas Cook. It was already stretched from earlier operational changes, some of which can be taken back to its merger with MyTravel Group in 2007 and others that demonstrate the changing nature of travel throughout the 21st century.
This changing nature also includes the growing intensity of competition in the travel-related sector. Tourism businesses operate on high volume sales with small profit margins – that is to say they need to fill seats on planes and rooms in hotels to make a profit. One empty seat is dead weight and eats into whatever slim profits are derived from all the other seats and rooms sold.
While the ultimate responsibility for the business failure of Thomas Cook must rest with the hands of its management, they faced a number of factors outside their control. The effects of the Brexit discussions, together with a poor economic growth rate, have resulted in a much weaker pound. This has meant higher costs for the overseas travel industry, putting even greater pressure on their already slender profit margins.
The size of Thomas Cook brings the obvious advantages of economies of large-scale production. But while it may prosper in growing business environments, with a declining market and increased competition from the rapid growth of AirBnB and numerous specialist travel agencies and tour operators, size can become a burden. The vagaries of the UK’s weather also played a part, with record temperatures fuelling a rise in staycations and curtailing demand in a market with ever-increasing sources of supply.