Thomas Cook Group Plc.

Whatever happened to Thomas Cook?

British travel group Thomas Cook declared bankruptcy on September 23, 2019
after failing to secure a last-ditch rescue deal. This declaration left many
travelers and Thomas Cook customers stranded in various locations around the
world. At the time of its collapse, Thomas Cook was one of the largest global
travel companies with annual sales in excess of £9 billion pounds, from its
estimated 19 million customers per year and 22,000 employees operating from
16 different companies. There are many lessons to learn from the dynamic
journey of this company and its powerful brand. For lenders know that no
business is too big or too old to fail!
Whatever happened to Thomas Cook?

History: Thomas Cook – The Travel Entrepreneur

The founder of the company, Thomas Cook (22[1] November 1808 – 18 July
1892) was an English businessman and Baptist missionary. He grew up I
Melbourne, Debyshire and became a Baptist evangelist when he was 18 years
old. This role gave him the idea of organizing excursions for members of the
Temperate Society of the Baptist Church and the birth of the travel company
Thomas Cook.
With the opening of the extended Midland Counties Railway, he arranged to
take a group of temperance campaigners from Leicester Campbell Street railway
station to a teetotal rally in Loughborough, eleven miles away.
 On 5 July 1841, Thomas Cook escorted around 500 people, who paid
one shilling each for the return train.
 On 4 August 1845 he arranged for a party to
travel from Leicester to Liverpool.
 In 1846, he took 350 people from Leicester
on a tour of Scotland.
 In 1851 he arranged for 150,000 people to
travel to the Great Exhibition in London.
 In 1855, he organized the first continental
tour, taking 2 parties from Harwich to
Antwerp, Brussels, Cologne, Heidelberg,
Strasbourg and then Paris.
 Thomas Cook – An Evolutionary Journey

1841  Thomas Cook organises his first excursion; a rail journey from Leicester
to Central England. The birth of the organisation is traced to this date.
1928  Frank & Ernest Cook, the surviving grandsons of the founder retire and
sell the business to the Compaigne Internationale des Wagons-Lits et
des Grands Express Europeens.
1948  The business becomes state owned under The British Transport Holding
Company.
1972  The business is privatized and bought by a consortium of Britain’s
Midland Bank, Trust House Forte and Automobile Association.
1990  Thomas Cook acquires retail foreign exchange operations of Deak
International and becomes the world’s leading foreign exchange retailer.
1992  Westdeutsche Landesbank, Germany’s 3rd largest bank and LTU Group
(Germany’s leading charter airline), acquire the company from Midland
Bank.
1999  The EU approves the merger of Thomas Cook & Carlson Leisure Group’s
UK travel interests.
2001  Thomas Cook sells its Global & financial services division to Travelex
 Thomas cook is acquired by the German travel company Condor &
Neckermann and changed its name to Thomas Cook AG
2007  Thomas Cook AG & MyTravel Group Plc., merge to form Thomas Cook
Group Plc. Under the terms of the merger, the owners of Thomas Cook
AG, KarstadtQuelle (later Arcandor), owned 52% of the new group. The
shareholders of MyTravel Group owned the remaining 48% share.
 Thomas Cook Group Plc and was then listed on the London Stock
Exchange.
 Bought booking website Hotels4U.com for £21.8 million.
2008  Bought the luxury travel firm Elegant Resorts from its founders Geoff
Moss and Barbara Catchpole for an undisclosed figure.
 They took over  Preston-based Gold Medal International, owner
of NetFlights, in a deal worth £87 million in December 2008.
2009  Major shareholder Arcandor filed for bankruptcy. Arcandor's shares in
Thomas Cook were sold by its creditor banks in September 2009.
 Thomas Cook signed a deal with Octopus Media Technology to provide
an online video player for Thomas Cook TV and another deal with
International Entertainment Supplier The E3 Group, to exclusively supply
 entertainment to the group.
2010  Thomas Cook Group bought German tourism company Öger Tours,
which was owned by Vural Oger and then retired the Going Places brand
and merged all its agents into one, Thomas Cook
2011  The group merges its UK retail operations with those of the Cooperative
Group & Midlands Cooperative society, creating UK’s largest chain of
travel agents.
2014  Thomas Cook Group sold Gold Medal Travel including Netflights.com
to dnata for a reported £45 million
2015  Thomas Cook Group announces a new strategic partnership with Chinese
investment Group – Fosun International Limited.
2016  The Co-operative Group decided that it would exercise its option to quit
the branch network joint venture. Thomas Cook Group announced it
would buy out the stakes in The Co-operative Travel owned by The Co-
operative Group and Central England Co-operative, taking full control of
the retail network and re-branding the high street travel stores that had
operated under the Co-operative brand gradually during 2017–18.
2017  Sold Belgian airline operations to Lufthansa. As a result, Thomas Cook
Airlines Belgium was shut down by November 2017.
2019  Company receives bids for airline business
 March, closed 21 travel offices making 300 staff redundant
 April, hired restructuring specialist Alix Partners to help restructure
balance sheet and reduce £1.6 bn debt.
 May; secured £300 mm emergency funding from its banks and loss of
£1.5 billion for first half financial year with £1.1 billion attributable to
goodwill write-downs.
 August; Fosun agrees to pay £450 million for 75% of the firm's tour
business and 25% of its airline. Also secured £900 million via debt/equity
swaps.
 September; "The most shorted  company on the London Stock Exchange,"
and asked HM Government to fund a £200 mm gap in the company's
finances to prevent the firm falling into administration.
 September 23, company ceases operations & goes into compulsory
liquidation.

The Business Structure

Thomas Cook Group Plc was a British global travel group formed on 19 June
2007 by the merger of Thomas Cook AG (itself the successor to Thomas Cook
& Son) and MyTravel Group. The company was listed on both the London
Stock Exchange and the Frankfurt Stock Exchange.

The Company Operations

The group operated in two separate segments:
 a tour operator and
 an airline.

Net Sales Breakdown by Activity

 Sale of holiday packages; flights, transfer, accommodation, travel insurance,
etc. - 67.8%
 Airline Services – 32.2%
(at the end of September 2018, the group owned 186 hotels & operated a fleet of 100
aircrafts)

Net Sales Break Down Geographically as Follows:

 United Kingdom (24%)
 Germany (37.8%)
 Europe (28.2%)
Ref Market Screener.com

Sales per Businesses

2017 2018 Delta
GBP (in Million) % GBP (in Million) %
7,079 78.6% 7,360 76.8 +3.97%
Tour Operator
%
1,928 21.4% 2,224 23.2 +15.35
Airline
% %
Sales per Regions
2017 2018 Delta
GBP (in GBP (in
% %
Million) Million)
Continental Europe 4,139 46% 38.00 0.4% -99.08%
2,476 27.5 2,623 27.4 +5.94%
United Kingdom
% %
 1,470 16.3 4,130 43.1 +180.95
Germany
% % %
1,307 14.5 1,272 13.3 -2.68%
Northern Europe
% %
- - 2,850 29.7 -
Global
%
TOUR OPERATORS
Tour operator Country Logo Joined the group
Thomas Cook Tour
United Kingdom Sunny Heart 1841
Operations
Thomas Cook Germany Germany Sunny Heart 2001
Thomas Cook France France Sunny Heart 2001
Thomas Cook Netherlands Netherlands Sunny Heart 2001
Thomas Cook Belgium Belgium Sunny Heart 2001
Thomas Cook China China Sunny Heart 2016
Independent 2007 (former MyTravel Group
Airtours United Kingdom
Logo Subsidiary)
Norway 2007 (former MyTravel Group
Ving Sunny Heart
Sweden Subsidiary)

2007 (former MyTravel Group

Tjäreborg Finland Sunny Heart
Subsidiary)
2007 (former MyTravel Group
Spies Denmark Sunny Heart
Subsidiary)
2001 for Poland and Hungary
Poland
2007 for Czech Republic
Neckermann Hungary Sunny Heart
Czech Republic

Austria
Neckermann Reisen Sunny Heart 2001
Switzerland

Independent
Intourist Russia and Sunny 2011
Heart
Hotel chains: Thomas Cook Hotels & Resorts is the hotel division of The
Thomas Cook Group Plc. They have 200 hotels operating under 8 brands
and spread across 47 destinations. Their brands are:
 Casa Cork  Aldiana Club Resorts
 Sentido Hotels & Resorts  Sunwing Family Resorts
 Sunprime Hotels  SunConnect Resorts
 Cooks Club  SmartLine
 Several Partner hotels
AVIATION
The Thomas Cook Group's airline division operated as one operating segment,
the Thomas Cook Group Airlines (TCGA).

Joined
Airline Country the Description
Group
Thomas Cook United Established in 2003, renamed from
2003
Airlines UK Kingdom the former JMC Air. All Airbus fleet.
Thomas Cook
Airlines Spain 2017 Established in 2017
Balearics
Norway
Thomas Cook Thomas Cook Airlines Scandinavia,
Airlines Denmark 2007 previously known as MyTravel
Scandinavia Sweden Airways.

Condor Flugdienst originally

Condor established in 1956, German carrier
Germany 2001
Flugdienst and former subsidiary of Lufthansa.
Operate Airbus & Boeing
AB Aviation was renamed to Thomas
Thomas Cook
Germany 2018 Cook Aviation (TCN) with
Aviation
headquarters in Frankfurt.

When did the Problems begin?

Thomas Cook is no stranger to challenging times. Their dynamic journey shows
many ups and downs in their history and growth profile. In its early years, it
faced-off some threatening issues including owning the raucous Club 18 – 30,
which it sold off in 1948 when it failed to find a buyer. This pattern of buy and
sell as challenges arise colour the company’s eventful history. So, what finally
folded the travel giant?

What went wrong?

History comes full circle for Thomas Cook. Eight years ago, Thomas Cook was
perilously close to insolvency. It was bailed out by an emergency loan from a
group of banks led by the Royal Bank of Scotland – the same bank who’s
lending terms and conditions have led to the collapse of the company.
John Strickland is an aviation analyst and comments that Thomas Cook has
been troubled for a very long time and in his opinion “it looked very much like
too little, too late”. Many other business experts in the industry believe that
Thomas Cook was using an analogue business model in a digital world.
Alice Hancock, FT’s leisure industries reporter in her report writes: Thomas
Cook was a 187-year-old travel company which was unable to adapt to the
digital age. Its network of more than 500 high street branches, something that
once offered enviable economies of scale and easy access to customers instead
became a draining financial burden. Thomas Cook’s business model, in which
it pays months in advance to secure hotel rooms for the summer, was also
exposed as flat-footed by nimbler online competitors such as On The Beach and
Jet2 which are better at adjusting to changing consumer demands. Customers
have become self-sufficient in putting together their own holidays. Did their
product become obsolete?
By October 2017, Jet2Holidays was reported as the second largest tour
operator in the UK, overtaking Thomas Cook and introducing the presence of
significant new players in an industry previously dominated by Thomas Cook
and the TUI Group. Several analysts also believe that in addition to competition,
the long-winded BREXIT issues which resulted in a weakening of the currency
and severe climate challenges have put pressure on the industry and customers’
purchasing preferences.
Understandably, Britons have been nostalgic of the loss of this very powerful
brand. However, Philip Georgiadis writing for Reuters has said that “Nostalgia
counts for nothing unless it prompts consumer purchases”. He comments that
“a string of ineffectual bosses talked up the value of Thomas Cook’s brand. It
has proved worthless, as have their shares”.
The company seemingly did not notice or respond to the pace by which
customer and supplier confidence was declining. Newspapers in the UK,
doggedly traced and reported fatal events some Thomas Cook customers had
faced while on holiday, including the death of 2 small British children in
October 2006. An inquest held in 2015 into the children’s deaths concluded that
the travel agency had "breached its duty of care". Further investigations showed
that Thomas Cook had received £3m from the owners of the hotel where the
children's deaths had occurred. Their way of managing the crisis was to donate
£1.5m to UNICEF without informing the family. Joanna Bourke of the UK
newspaper The Independent wrote: "Nothing Thomas Cook could ever do would
bring back the two children killed by carbon monoxide poisoning on a Greek
holiday in 2006. But the firm's handling of the case has been a lesson in how
not to manage a crisis".
In 2018, they faced another disaster when an elderly British couple on holiday
in Egypt died and several others started falling ill. In that instance, they
evacuated about 300 customers holidaying at the same resort. Turkey, one of its
key holiday destinations also experienced a mass shooting in a tourist resort
leaving many holiday makers dead. In response, they focused on the
competitive Spanish market to boost sales.
Global Ripple Effects
When Thomas Cook Group announced cessation of business on September 23,
2019; ripple effect on stakeholders were felt globally.
 The Customers – Over 150,000 thousand holiday makers were stranded in
locations as partner hotels and airlines ceased operations. Many more were
facing uncertainty about travel plans made earlier. The UK government
embarked on the largest peaceful repatriation exercise in its history trying to
bring stranded British passengers back home.
 The Staff – Thomas Cook Group had around 15,000 staff of which 6,000
were made redundant immediately. The balance will face redundancy after
the repatriation exercise. Greater Manchester mayor Andy Burnham has
moved to help Thomas Cook employees find new jobs or training. Around
3,000 staff work in the city, which is the headquarters of its airline and
aircraft maintenance center,
 The Shareholders - For many years, shareholders were not paid dividend as
the group struggled with its cash flows.
Fosun backed Thomas Cook in hopes of tapping rising Chinese middle class
and until its collapse was the largest shareholder with 18% stake in the
company.
Neset Kockar, a Turkish businessman bought an 8 % stake in Thomas Cook
less than two months ago hoping the brand would boost his Turkish travel
company, Anex Tours. Mr. Kockar said that he had known at the time that
Thomas Cook was badly run, before didn’t know how bad. Hi stake in the
business was worth around £7m at the end of July, according to FactSet data.
 The Service Partners -
 Spain is most likely to be the worst hit with an estimated 4 million tourists
each year travelling with Thomas Cook. Hotels, airports, entertainment
centers and jobs will be affected.
Malta Tourism minister, Konrad Mizzi says about 50,000 Thomas Cook
holidaymakers visit the island state each year.
According to the company’s website, Turkey was the second most popular
summer destination for clients. The country’s tourism sector is a key pillar of
the economy. Many Turkish analysts say that some hotels may go bankrupt.

Germany has been deeply affected by the company’s insolvency. Their

German subsidiaries - Neckermann, Öger Tours, Air Marin and Bucher
Reisen - have all stopped sales of package holidays.
The Russian business will continue Russian tour operator Intourist, one of
the country’s largest tour operators is owned by Thomas Cook (50.1 %
stake). The company says the collapse of its parent will not affect it as an
"operationally and legally independent company".
In 2012, Thomas Cook sold its Indian business to Canadian holding
company Fairfax in an agreement that allows the company use the Thomas
Cook brand until 2024. The company is India’s largest travel company. With
recent developments, the company is hoping to keep the brand for
perpetuity.
The world’s largest Cruise Operators – Carnival, Royal Caribbean and
Norwegian Cruise Line – shares slipped immediately by 2%, 1.8% and 1%
respectively. Thomas Cook sold travel packages including cruise holidays.
 The competitors
Its main rival TUI has share prices increasing by 6% ton the FTSE 100 the
day after Thomas Cook ceased operations. Barclays analyst forecast that if
TUI picked up £2bn of lost Thomas Cook revenue it would be worth an extra
4 per cent to group trading profit.
Shares in smaller travel retailer On the Beach rose 8 %, EasyJet and
Ryanair led gains among the airline stocks, rising 4 % and 1 %,
respectively.
 Insurers face likely deluge of claims
It still remains a bit unclear which particular insurer will be liable. ATOL,
the travel industry’s compensation scheme says Those who have bought
flights from Thomas Cook are not covered by ATOL A lot depends on the
terms of the particular policy holiday makers have paid for.
 Shares in listed travel insurers such as Direct Line, Aviva and Saga have
remained broadly flat.
 Finance
Thomas Cook's bonds have drastically plummeted in price to even more
distressed levels on the day it ceased operations. The price on the company's
bond maturing in June 2022 collapsed to just 5 cents on the euro from 8.5
cents at the end of last week, according to Refinitiv data, it had been trading
at around par (or 100 cents on the euro) up until October 2018. The bond
was the most actively traded security on the European secondary market,
according to MarketAxess, recording volumes of €130m by lunchtime in
London.
Auditors EY to be investigated by British authorities
Thomas Cook – Financial Highlights
2018 2017
Profit & Loss Statement
Revenue (£’ million) 9,584 9,006
GPM 20.4 22.1
EBIT (£’ million) 250 308
PBT (£’ million) (53) 43
PAT (£) (163) 9

Balance Sheet Extracts

Fixed Assets (£’ million) 728 720
Net Assets (£’ million) 291 256
Long Term Debt (£’ million) 1,028 1,047
Intangible Assets (£’ million) 3,104 3,136
Accumulated Losses (£’ million) (1,965) (1,891)
Total Equity (£’ million) 291 256

Excerpts from Cash Flow Statement

Net Cash from Operating Activities 139 496
Net Cash Used in Investing Activities (203) (199)
Net Cash used in Financing Activities (281) (175)
Net Increase/Decrease in Cash (345) 122
Free Cash Flow (148) 146
References

1. Thomas Cook Group Plc Website

2. Key Dates in the History of Tour company Thomas Cook – Reuters News,
Thompson Reuters, September 24, 2019
3. What killed Thomas Cook, one of the oldest names in travel? – The New
York Times – By David Segal, September 26, 2019
4. Thomas Cook Group – Wikipedia
The future of Banking & the Financial Services Industry

The financial services industry is highly cyclical and thus bears all shocks
within an economy. The world is changing at a rapid pace and banks must adapt
their services and systems to accommodate these changes. Credit will continue
to be an important part of any growing and changing economy, however, banks
must begin to change the way Credit Risks have been measured and loans
managed in the past.

The attached Thomas Cook case clearly points out one thing – no organisation
is too big or too old to fail! Beware.

This case was compiled by ID Ogufere for classroom discussions only. September 2019.