Tour operators face confidence crisis

SINGAPORE, 27 September 2019: “Don’t throw good money after bad” should be chiselled on the tombstone of Thomas Cook Group that collapsed under the weight of debts surpassing UKP1.1 billion.

It closed Monday when a last-ditch effort to raise UKP200 million failed to save the 178-year old travel brand, and for many, it triggered incredible distress and turmoil. 

More than 9,000 people in the UK and a total global workforce of around 22,000 are now redundant.

The UK Secretary of State for Transport Grant Shapps addressed Parliament  Wednesday describing the biggest rescue mission of British holidaymakers.  Named Operation Matterhorn, over the next two weeks it will fly 150,000 British citizens back home at the cost of UKP100 million.

From the UK, 1,000 flights will operate over two weeks to repatriate British citizens from 50 countries, an operation carried out by a “shadow airline” that attempts to replicate the schedules of defunct Thomas Cook Airline as closely as possible.

As part of the rescue mission, more than 3,000 hotels have received payment guarantees from the UK Civil Aviation Authority that is coordinating the rescue flights.

Shapps defended the UK government’s decision not to bail out Thomas Cook Group. He noted that “given the company lost UKP1.1 billion and the profit warning last May it would have been “throwing good money after bad.”

For several years the group ran into financial troubles and attempted to “expand its way out of difficulties in a manner opposed to market trends”, the minister told Parliament.

He called it a “failure of financial reporting, and if people failed in stewardship, we need to look at all options to protect consumers.”

Shapps said the UK Financial Reporting Council would investigate the conduct of Thomas Cook Group’s directors.

There are calls for the council to investigate why the CEO and directors paid themselves UKP20 million in bonuses while the company reported losses.

In hindsight, it looks incredibly naïve that the Thomas Cook CEO and management could not anticipate where they were heading. They have been throwing good money after bad since 2018 to save an “analogue business model that was out of step with a digital era.”

In November 2018, business analysts had suggested that Thomas Cook should split the business to help recover its financial health. The directors responded by paying themselves huge bonuses and failing to accelerate an overdue restructuring. It closed a token 21 high-street travel shops out of 530 in the UK. In this day and age, how could a travel outfit justify the investment in high street travel shops?

I recall attending ITB Asia opening presentations some years back when confident CEOs heading mega travel firms argued their business models had a future. Very few of them are around today to admit their optimism was misplaced. The corporations they headed have long gone bust. They were the fat cats of the travel industry talking nonsense at travel shows and guilty of sinking their heads in the sand. 

If we believed the presentations, we assumed the CEOs had clear answers to disruptive technology and that the traditional tour operator business model still had a sustainable future.

Those assumptions were wrong. Despite the spin and false evaluations that emit from most travel conference podiums these days, the steady decline in household travel brands continues to accelerate.

The failure of the Thomas Cook Group will become a tipping point. If it can happen to Thomas Cook, it can happen to any travel firm large or small.  The ramifications are far-reaching.

They will start with banks downgrading confidence ratings for tour companies. If they are not online travel firms, they will face much stricter scrutiny when applying for loans.

Hotels will review payment terms. Thomas Cook Group and its partners probably enjoyed 30 days credit. Often independent hotels in Thailand demand Chinese travel firms pay cash at the counter at check-in. That day may dawn for Europe’s traditional tour operators. The Thomas Cook collapse will leave unpaid hotel bills worldwide, and hotels will lose confidence in European tour firms regardless of their past track record.

Consumer confidence suffers a grievous blow.  Tour operators often boast that they look after their customers. If there is a coup or an airport closes, you are better off if you booked with a travel agent. They will get you safely home ahead of independent travellers.

Now we read that 150,000 UK travellers were stranded not by a coup but by a travel company failure.

I wager that in the future those 150,000 travellers are going to think twice before then book a holiday through a travel firm.

Booking travel directly online without any assistance also has a risk but it considerably lower than going down the package holiday path.

Consumers will soon have the option of booking air and land travel content through airlines that are fast adopting the role of one-stop travel shops.  IATA’s New Distribution Capability  (NDC) protocol gives airlines access to retail travel content that can be bundled conveniently on their websites. Consumers in future may feel more secure buying land services from the airline they book frequently for flights.  Tour operators will see their business space squeezed even further. They are under the cosh, and only highly specialised niche market companies will be able to adapt and survive the confidence storm.