Is the death of Thomas Cook a sign of more to come in the travel industry?

travel industry in trouble?Commentators have been quick to predict the death of the package holiday and in some cases of much of the travel industry following the demise of Thomas Cook in September.

But is this really the case?

Johan Lundgren, the chief executive of easyJet, argues that it is too soon to predict the demise of the travel industry, or indeed of package holidays.

In an article in the Daily Telegraph he says: “sales of holiday packages have grown faster than the economy every year for the past 10 years”.

There is no doubt, however, that technology has made a significant difference to the way people search, book and pay for their holidays.

Lundgren acknowledges that requirements and buying methods have changed significantly: “Rapid development in technology and AI, combined with a focus on data now allows the customer to find holidays suited to them online”.

Holiday companies, he said, needed to invest in technology to support customer interactions.

The tour operators trade body ABTA (Association of British Travel Agents) said 51% of people it surveyed in July had taken a package holiday in the past year, up from 48% in 2018.

According to statistics from the Office for National Statistics (ONS), the number of package holidays taken in the UK has been rising steadily since 2014, reaching 18.2m last year.

In its latest quarterly bulletin on overseas travel in general, published in September, the ONS results found that UK residents spent £4.5 billion on visits overseas in June 2019 (1% more than in June 2018), however, they made 6.8 million visits overseas in June 2019 (7% fewer than in June 2018).

There are also plenty of successful small, independent local travel agents offering tailored packages to fit customers’ requirements. We know of at least three in Suffolk alone and there are doubtless many more around the country.

So clearly once people have decided where they want to go and what they want to do, they still feel the need for someone to take care of the details and to have the assurance of having someone available should things go wrong.

Furthermore, the price paid by consumers and amount received by holiday providers might provide a clue to why travel operators and package travel companies ought to survive. Most online purchases, in particular for accommodation, are now handled by firms like booking.com, trivago.co.uk or tripadvisor.co.uk who charge hotels up to 30% of the package. This is a huge margin for travel companies to exploit.

So, what happened to Thomas Cook?

The company was launched in 1841 by a Derbyshire preacher, Thomas Cook, and became one of the world’s biggest companies to offer “integrated holidays” (ie package holidays).

The company issued two profits warnings in 2018 and in May revealed it was carrying huge amounts of debt – around £1.2bn. According to the Financial Times, many of its wounds were self-inflicted: “Successive managements allowed debts to balloon. The company revealed a debt pile of £1.2bn in May and recorded a £1.1bn write-down from its ill-fated acquisition of MyTravel, a UK rival. About one-third of Thomas Cook’s sales was spent just on servicing its loans”.

Generous remuneration to its executives, including an estimated £20m in bonuses and payment of more than £8m over the past five years to chief executive, Peter Fankhauser, have also been cited as excessive.

The company also received, and declined, five offers for its profitable airline operation and as if that were not enough, the FCA (Financial Conduct Authority) is investigating EY’s audit of the company’s accounts.

The German international broadcaster, Deutsche Welle, has speculated that opaque private equity deals amid low interest rates may also have played a part in its collapse.

Arguably an out-dated business model depending too much on high street retail outlets and a failure to adopt modern technology will have contributed too.

But while there will undoubtedly be casualties among travel firms that fail to adapt their business models and practices to modern consumer requirements, and, of course, the whole industry is vulnerable to the volatility of consumer confidence in the context of an eventual post-Brexit future with fears about job security, it would be unwise to predict the death of the travel industry as a result.

 

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