Thomas Cook - Where Did It All Go Wrong?
On 23 September 2019 Thomas Cook went into compulsory administration and shuttered its doors across the UK, leaving thousands of staff and suppliers facing uncertain futures and more than 100,000 holidaymakers to be brought home on government rescue flights, in the largest repatriation since WW2. This was the biggest failure of a travel firm in British history.
Founded in 1841 by cabinet maker, Thomas Cook, the company grew into a huge global travel group, with annual sales of £9 billion, 21,000 staff operating in 16 countries and 19 million customers a year. Three years ago, Thomas Cook celebrated the 175th anniversary of what is considered to be its first packaged "holiday" tour, a group rail journey from Leicester to Loughborough for 500 teetotallers attending a temperance rally.
Thomas Cook survived and thrived through seismic changes in the 19th and 20th centuries; from industrialisation and the expansion of the railways, to the rise and fall of the British Empire and two World Wars. Its history is also the history of how Brits spent their holidays and explored an increasingly accessible world. "Don't just book it - Thomas Cook it!" is a phrase etched in the British memory.
Travel company Cox & Kings is still going strong 260 years on. So where did it all go wrong for the 178-year old travel group? When did we stop ‘Thomas Cook-ing it?’
The digital age has seen a revolution in travel and consumer behaviour. The internet and the rise of budget airlines have made holidays cheaper and more accessible than ever before. An outdated business model, with expensive to run high-street branches, couldn’t compete in the age of the internet when savvy customers search online for holidays.
The package holiday itself has remained popular, as evidenced by Thomas Cook’s 19 million customers each year. But its target market – the budget end - is extremely price sensitive. Cheaper holidays mean slender profit margins.
A number of other factors combined to bring Thomas Cook down:
A terrible financial position with a balance sheet deficit of £3.1bn: Fixing the fragile balance sheet should have been the company’s top priority. One of the most astonishing statistics in this whole saga is that the company paid a crippling £1.2bn in interest charges after 2010.
An increasingly competitive trading environment: In November 2017 in the annual report, Chairman Frank Meysman wrote that “a highly competitive environment ... has contributed to the collapse of a number of competitors in the last 12 months.” He and the Board were clearly aware of the external risks but did little to adapt their business model.
Making excuses for declining sales: Last year, the company blamed its declining sales on the heatwave experienced in the UK having deterred travellers from going abroad. This excuse was patently untrue as the majority of summer bookings were made months earlier.
Operating at the budget end of the market: A missed opportunity was the boom in upmarket bookings to South America, India and Asia. Companies like Kuoni, Hayes and Jarvis and Abercrombie and Kent have prospered by offering tailor-made holidays to adventurous travellers who want well-planned, personalised itineraries and to travel responsibly.
Not making the most of one of their strengths: Previously, Thomas Cook’s employees were regarded as among the best trained in the industry, able to help customers with more complex travel arrangements. Instead of capitalising on this strength, staff at Thomas Cook’s high street outlets focused on selling cheap brochured packages rather than concentrating on areas where people still needed their advice and expertise.
These factors were easy to foresee had the Thomas Cook board and its leadership team been willing to confront what my favourite management guru, Jim Collins, calls the “brutal facts” of the situation. As business leaders, our job is to hold the vision for the future we want to create, while simultaneously dealing with the current reality and contingency planning for what could go possibly wrong. This is called the Stockdale Paradox.
Wishful thinking is no substitute for a practical strategy grounded in an understanding of the marketplace and our core values. The brutal reality was Thomas Cook bosses hoped their business could be revived without making major changes to the way they operated - and when they were weighed down with crippling debt and no banks willing to help them restructure.
OVER TO YOU
What’s your take on where it all went wrong for Thomas Cook? I love reading your feedback so please do take a moment to tell me in the comments box below.
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