Lessons from Thomas Cook’s collapse

By Emmanuel Onwubiko

The phenomenal fall from grace to grass of one of Europe’s best known travel agencies known as Thomas Cook can be compared with the fall of a giant. Thomas Cook is the second largest tour operator in Europe just after TUI AG Worldwide which generated revenue of around 19.52 billion Euros during the fiscal year ending September 30th 2018 according to a source called STATISTA.  

Perhaps, the liquidation of this iconic British born company with a proud British history can be likened to the defeat of Goliath by David in the Old Testament. I chose to compare the collapse with the fall of Goliath by David because of the strong history of global best practices that had trailed this company before it snow balled into a badly managed business concern. In my many years of travels to the United Kingdom spanning nearly two decades, i actually perceived Thomas cook as a national asset of Great Britain not until the bubble burst earlier today and about 600,000 tourists of the company left stranded all across the World with Tunisia announcing that Thomas cook owes it $60 million just as 22,000 employees have been thrown into the uncertainty of the Labour market. The fall of this giant compelled this writer to ask questions about how in Nigeria so many companies had collapsed especially in The banking industry but there was this void regarding paying off depositors who lost huge amounts of cash in these collapsed banking institutions numbering over 40 in the 1990's which I will endeavor to reel out towards the end of this piece. We will also ask the Nigerian government to learn from the British government how to care for her citizens whenever private firms collapsed and leaving the clients who are citizens in terrible circumstances. What is this giant company that has unraveled?

These are the collective historicity of this iconic British company called Thomas Cook founded by Thomas Cook (22 November 1808-18th July 1892) as compiled by the Europe based agency reporters called Reuters.

In 1841 - Thomas Cook organized his first excursion, a rail journey from Leicester in central England to the neighboring town of Loughborough. A special train carries some 500 passengers a distance of 12 miles and back for a temperance (anti-alcohol) meeting. In 1855 - Thomas Cook’s first continental tour. He takes two parties from the eastern English port of Harwich to Antwerp, then to Brussels, Cologne, Heidelberg, Strasbourg and, finally, to Paris for the International Exhibition. Cook offers a complete holiday “package” (comprising travel, accommodation and food) for the first time. Thomas also offers a foreign exchange service for the first time. 1865 - Thomas Cook opens his first high-street shop in Fleet Street, London. 1874 - Thomas Cook launches “Cook’s Circular Note” a precursor of the travelers’ cheque, in New York. 1919 - Thos Cook & Son, as the company was then known, is the first travel agent in Britain to advertise pleasure trips by air. 

In 1948 - Becomes state-owned under the British Transport Holding Company. 1972 - Privatized and bought by a consortium of Britain’s Midland Bank, Trust House Forte and the Automobile Association. 1990 - Thomas Cook becomes the world’s leading foreign exchange retailer when it acquires the retail foreign exchange operations of Deak International.

September 2019 - Thomas Cook seeks an additional 200 million pounds to see the company through the winter season when business is slow. Sept. 22, 2019 - Thomas Cook executives meet lenders and creditors in London to try to thrash out a last-ditch deal to keep the company afloat. Sept. 23, 2019 - Thomas Cook announces collapse after it failed to secure a rescue package. CEO issues apology.

So going through these illustrious trajectories as captured by Reuters, an observer is left asking to know what really went wrong? Was the company badly managed or has it outlived its relevance? 

A commentator was quick to state that it's been a long journey for travel firm Thomas Cook since its formation in rural Leicestershire during the early Victorian era.

As reported, the firm's fate was sealed by a number of factors: financial, social and even meteorological.

As well as weather issues, and stiff competition from online travel agents and low-cost airlines, there were other disruptive factors, including political unrest around the world, so reports experts with considerable focus on operations of tour companies.

The writer says also that in addition, many holidaymakers had become used to putting together their own holidays and not using travel agents. This explains the difficulty the dying firm witnessed just before it collapsed when it couldn't be bailed out which means that the century old business model is no longer profitable. 

And so as recorded by business reporters, last summer, and shares in Thomas Cook were trading at just below 150p. But after a series of profit warnings, the price had fallen to just a fraction of that. Earlier this year, analysts at Citigroup bank described the travel firm's shares as "worthless".

The downward trends continued even as it was stated that in May, Thomas Cook reported a £1.5bn loss for the first half of its financial year, with £1.1bn of the loss caused by the decision to write down the value of My Travel, the business it merged with in 2007.

Added to these facts is the fact that, it warned of "further headwinds" for the rest of the year and said there was "now little doubt" that Brexit had caused customers to delay their summer holiday plans. The egg heads in this company realizing the inevitable fate that may befall it, started to figure out possible bailout options which never worked any way.

The reporters said that when it was becoming clear that it won't survive for too long under its former identity, the company then put its airline up for sale in an attempt to raise badly-needed funds.

Thomas Cook later announced it was in advanced talks with its banks and largest shareholder, China's Fosun.

The troubled operator was said to have  hoped to seal a rescue led by Fosun, but the creditor banks issued a last-minute demand that the travel company find an extra £200m, which it was unable to do.

The company's boss, Peter Fankhauser, said the firm had "worked exhaustively" to salvage the rescue package and it was "deeply distressing" that it could not be saved.

For Thomas Cook's unfortunate staff, customers and shareholders, history has come full circle, so concludes a financial analyst who sounded apocalyptic.  

Observers were quick to remind us that eight years ago, the company lurched perilously close to the edge of insolvency after trading turned sour. It was pulled back from the brink by an emergency loan from a group of banks, led by Royal Bank of Scotland - ironically the same bank whose demand for extra money appears to have sunk the company this time.

As well as weak trading, the company's big problem in 2011 was too much debt - about £2bn when the pension deficit was included. It tried to put its borrowing problem behind it in 2013, with a £425m fundraising from shareholders.

Fast forward six years and Thomas Cook is back where it was, according to observers with considerable knowledge about the travel operating industry in Europe. 

An interesting dimension of how some business analysts saw it all was when one of these experts wrote that: "All the rescue money is gone and the debt pile is back to £1.6bn. Again it has been thumped by poor trading and a series of one-offs, notably weak sterling and a summer heat wave that led to a downturn in demand".

"But there is evidence of deeper problems, as well as a lack of management control. The company stopped paying dividends to shareholders in 2011..."

However, one lesson which companies should learn in Nigeria is to always provide a fallback position for their clients in times of emergencies. For instance Thomas Cook's package holiday share of the market has remained broadly unchanged.

One reason for this is that most air package holidays sold by travel companies based in the UK have ATOL protection.

This protection means that if the business collapses while travellers are away on holiday, they will be able to finish their trip and then travel home.

If a business folds before someone's trip, the scheme will provide a refund or replacement holiday. So why did British government not bail out this iconic company and save thousands of jobs?

This probing question is imperative because as reported, a row broke out over what could have been done to prevent the collapse of Thomas Cook, as Boris Johnson defended his refusal to order a bailout of the travel company while Labour said there should have been a state-backed rescue package.

Warning that state intervention risked creating a “moral hazard” in future cases of companies on the brink, the prime minister hinted at possible government action against directors of travel firms who oversaw bankruptcies.

In the wake of the collapse of the budget airline Monarch, and now of Thomas Cook, he said it was time to “reflect on whether the directors of these companies are properly incentivized to sort such matters out”.

British media reports that despite coming under fire from Labour and the unions for failing to step in to save the collapsed tour operator, the Premier said it did not seem the government could have done more to help, for example by agreeing to Thomas Cook’s request for a £150m bailout.

On the request for government funding, he told reporters on his plane while en route to the UN general assembly in New York: “Clearly, that’s a lot of taxpayers’ money and sets up, as people will appreciate, a moral hazard in the case of future such commercial difficulties that companies face.”

The media observed that the Thomas cook affair has laid bare differences in approaches between the Tories and Labour towards state intervention, with the shadow chancellor, John McDonnell, blaming the government’s “ideological bias” for its decision not to intervene.

“The government’s intervention could have enabled us to just stabilize the situation, give a breathing space so that there could be proper consultation with the workforce in particular about how to go forward,” he told the BBC.

“To just stand to one side and watch this number of jobs go and so many holidaymakers have their holiday ruined, I just don’t think that’s wise government.”
Rebecca Long-Bailey, the shadow business secretary, described the government’s position as “reckless” and said it should have stepped in to take an equity stake.

The refusal to intervene was also condemned by trade unions, who insisted the cost of bringing stranded Thomas Cook customers home from holidays abroad would dwarf the amount of taxpayer support requested by the firm.

“You don’t have to be a mathematical genius to know it would have been cheaper and more cost-effective to save what is a cornerstone of the British high street,” said Manuel Cortes, the general secretary of the Transport Salaried Staffs’ Association.

The Unite general secretary, Len McCluskey, said the government’s “do nothing” attitude “had left workers and customers high and dry while landing taxpayers with a bill of hundreds of millions of pounds”.

As gathered by my background research for this piece,  a round of morning media interviews was staged by the transport secretary, Grant Shapps, who said the operation to repatriate customers would cost £100m, less than the sum requested by Thomas Cook.

“The company were asking for up to £250m, they needed about £900m on top of that and they have got debts of £1.7bn, so the idea of just spending taxpayers’ money on that just wasn’t really a goer,” he told ITV’s Good Morning Britain.

“I think the problem of putting money into it, apart from the fact governments don’t usually go around investing in travel companies, is that it may have just stretched things out for a couple of weeks and we could have been exactly where we started.” Before anyone in Nigeria think that what has happened to Thomas Cook has never happened let us be reminded that here is a List of closed financial institutions under liquidation with name of bank under liquidation and date of closure numbering 40 in Nigeria: Abacus Merchant Bank Ltd (Jan. 16, 1998); ABC Merchant Bank Ltd (Jan. 16, 1998); African Express Bank Ltd (Jan. 16, 2006); Allied Bank of Nigeria Plc (Jan. 16, 1998); Allstates Trust Bank Plc (Jan. 16, 1998); Alpha Merchant Bank Plc (Sept. 08, 1994); Amicable Bank of Nigeria Plc. (Jan. 16, 1998);Assurance Bank of Nigeria Plc   Jan. 16, 2006;Century Merchant Bank Ltd.          Jan. 16, 1998;City Express Bank Plc     Jan. 16, 2006;Commerce Bank Plc          Jan. 16, 1998;Commercial Trust Bank Ltd      Jan. 16, 1998;Continental Merchant Bank Plc    Jan. 16, 1998;Coop. & Commerce Bank Plc   Jan. 16, 1998;Credite Bank Nig. Ltd     Jan. 16, 1998;Crown Merchant Bank Ltd.       Jan. 16, 1998;Financial Merchant Bank Ltd.    Jan. 21, 1994;Great Merchant Bank Ltd.        Jan. 16, 1998;Group Merchant Bank Ltd.  Jan. 16, 1998;Gulf Bank Ltd Jan. 16, 2006;Hallmark Bank Plc    Jan. 16, 2006;Highland Bank of Nig Plc          Jan. 16, 1998;ICON Ltd. (Merchant Bankers)    Jan. 16, 1998;Ivory Merchant Bank Ltd.         Dec. 22, 2000;Kapital Merchant Bank Ltd. Jan. 21, 1994;Lead Bank Plc          Jan. 16, 2006;Lobi Bank of Nig. Ltd.         Jan. 16, 1998;Mercantile Bank of Nig. Plc.    Jan. 16, 1998;Merchant Bank of Africa Ltd.        Jan. 16, 1998;Metropolitan Bank Ltd.    Jan. 16, 2006;Nigeria Merchant Bank Ltd.         Jan. 16, 1998;North-South Bank Nig. Plc.          Jan. 16, 1998;Pan African Bank Ltd.      Jan. 16, 1998;Pinacle Commercial Bank Ltd.   Jan. 16, 1998;Premier Commercial Bank Ltd Dec. 22, 2000;Prime Merchant Bank Ltd.   Jan. 16, 1998;Progress Bank Ltd. Jan. 16, 1998;Republic Bank Ltd  June 29, 1995;Rims Merchant Bank Ltd.    Dec. 22, 2000;Royal Merchant Bank Ltd.       Jan. 16, 1998;Trade Bank Plc   Jan. 16, 2006;United Commercial Bank Ltd.  Sept. 8, 1994;Victory Merchant Bank Ltd.          Jan. 16, 1998;Eagle Bank Plc.       Jan. 16, 2006;Liberty Bank Plc.         Jan. 16, 2006.

The above list of closed financial institutions according to government sources in Nigeria does not contain the names of these banks whose licenses were revoked by the Central Bank of Nigeria but the Federal High Court is yet to issue winding up orders and appoint the Corporation as Liquidator for the banks. Due to court actions instituted by some of the closed banks’ shareholders challenging the revocation of their banks’ licenses, the Corporation was unable to conclude the closing exercise and initiate the payment of deposits to depositors of the banks.

To view the record of Court Proceedings for such closed banks, go to Litigation under Legal Matters/Regulations.

Nigeria should continue to strengthen the regulatory legal frameworks that would guide against such a catastrophic event of a collapse of a behemoth which if it happens in Nigeria would constitute a monumental challenge. Look at the XENOPHOBIC violence against Nigerians and other black non South Africans especially Nigerians living in South African townships; it took the generosity of a private businessman Allen Onyema of Air Peace Airline to fly back hundreds of Nigerians. Today in Britain, the British government has intervened in a big way to bring back her stranded citizens who are affected by the collapse of Thomas Cook.  Nigerian government should borrow a positive leaf from the British government and prioritize the wellbeing of the Nigerian citizen over and above any other considerations irrespective of Ethnicity, politics and Cultural affiliations.  The wellbeing of the citizens marks a Sovereign entity as good and qualitative. 

*Emmanuel Onwubiko heads Human Rights Writers Association of Nigeria (HURIWA) and blogs @www.emmanuelonwubiko.com; www.huriwa@blogspot.com; www.thenigerianinsidernews.com