/ Travel & Leisure

Thomas Cook’s shares nose dive – will you steer clear?

Thomas Cook shares collapsed today after the tour firm announced it wanted to borrow another £100m from banks to help it get through winter. What does the future hold for the UK’s oldest tour operator?

The value of Thomas Cook’s shares fell by more than two thirds as investors sold them off in reaction to the company asking for more cash on top of debts already touching £1 billion.

If investors are extremely nervous, customers are now worried too. What will it mean for holidays you’ve already bought with Thomas Cook? And should you still make bookings with the company?

Thomas Cook hopes to calm those fears, with its interim chief executive insisting that the company is a ‘robust business with a great future’.

Turbulent times for Thomas Cook

Whatever happens to Thomas Cook, the vast majority of its holidays are covered by the industry’s financial protection scheme Atol, so you shouldn’t lose out.

Yet, with rumours that hundreds of Thomas Cook shops are going to close, today is a grim day in the operator’s 200 year history.

The company started package holidays in the UK, selling train trips to the coast, and it’s dominated the British travel industry ever since. However, the past few years have brought unprecedented challenges:

  • The rise of internet and no-frills airlines has encouraged people to put their own holidays together, rather than using a travel agent or tour operator.
  • The prolonged downturn starting in 2008 caused a big decline in holiday bookings.
  • Some of the few areas seeing growth – North Africa and the Middle East – were hit by political upheaval.

Will you head for the emergency exit?

On the other hand, maybe you think we need to look closer to home for Thomas Cook’s troubles. Rather than purely blaming outside events, does the company need to look at itself?

Some online commenters have complained about poor service and high prices, suggesting Cook had only itself to blame. Others have said the company has been hurt by government taxes on flying.

And what happens now? Will you steer clear of Thomas Cook because of the uncertainty surrounding the company – making a bad situation worse? Or will you rally round to support what was once a British institution?

Comments
Guest

Was once a British institution, German owned since 1992.

Guest

Hi Phil, yes we’re aware of the company’s German ownership (though it’s not quite as simple as that) which is why we put ‘was once a British institution’. Thanks!

Guest

It should never have bought the Co-op chain with the trend away from retail purchases but i have had lots of excellent holidays with them and would use their tour operation again.

Guest
geoff says:
23 November 2011

The only ones who should worry are the INVESTORS who paid £4 per share…All us other have no problems because of all the schemes the travel industry have in place..so lets not all act like stupid sheep and head for the exits….move on no need to worry here..

Guest

I have been fearing for the future of Thomas Cook for some time as our local branch is now running on only two staff, fewer customers are going in to book holidays and get currency [an overall downturn in foreign holidays is probably the main reason rather than avoidance of TC], and the stock of brochures is greatly depleted. The only travel agents in our town now are Thomas Cook and Coop Travel and one of them is sure to go following the merger. If TC is feeling the squeeze surely others like Thomson, First Choice, etc, must be in the same or even worse position. While I would have no worries about losing money or being stranded if TC failed, it would be extremely annoying to lose a planned holiday which might not be replaceable at the right time and at the same place and for a similar price. We have had some very good holidays through TC, using them both as an agent to book cruises and as an operator providing holiday packages purchased from their own brochures. We tend to book cruises on-line now direct with the crusie line and for package holidays we book on-line through TC or Thomson rather than use a branch; if this is general, the branches cannot survive and the Post Office will have a monopoly of on-the-spot over-the-counter currency dealing.
A worrying aspect of the financial strength of the travel industry is the revelation that TC has borrowings of £900m. Since we pay today for a holiday in six months’ time this is frankly alarming. For an industry that has few solid assets [the planes are probably leased, the shops likewise, the hotel stays are probably paid for in arrears, the staff might be on minimum redundancy terms and the overseas reps on short-term contracts] the banks have been extraordinarily supportive, possibly even unwisely so, but at an enormous cost in interest. The somewhat insecure foundations of these businesses must all be reflected in the levies payable to ATOL and the CAA which in turn bounce directly back into the costs of holidays. We [and the travel trade generally] are so quick to say “It’s alright . . . you are protected by ATOL” and so on, but this magic pot of consumer protection comes from other travellers’ pockets in the long run, so it’s vitally important that the holiday companies are well run, profitable, have working capital but not massive debts, and do not exceed their resources. I would not rule out using TC again in the future but we shall be watching carefully over the next couple of months. The big holiday promotions usually start on Christmas Eve so this is a particularly bad time to have worries over a major operator. The headline exposure TC got on the TV news bulletins on 22:11:11 obviously did nothing for consumer confidence but the media could not ignore such a major story involving a high-street institution – in fact, the media reports were restrained in their speculation and went to much trouble to emphasise the positive messages coming from the company’s CEO [it also doesn’t help that he is an interim boss and spoke with less than the required degree of reassurance although a bombastic performance would have been equally suspect]. Overall I think that customers [and potential customers] will not feel secure unless the banks pile in and underpin TC; the banks are in it up to their necks [our money again, of course] and must bear some responsibility if TC’s financial position is so vulnerable to a spot of turbulence in the midle east. As I write this, TC’s shares stand at 11p again having fully relapsed from their short-lived recovery today. It’s difficult to see how banks can [or why they should] throw more money at a company in that position so the future is extremely unsettled and probably no sensible holiday-maker would take the risk of booking with Thomas Cook right now. A shame, and very sad, but [and winter sports enthusiasts should look away now] if Thomas Cook is going to go belly down in an empty pool, then this is probably the best time of year for it to happen so we can take avoiding action.