Business Week: Thomas cooked – A cautionary tale

The collapse of the 178-year-old Thomas Cook empire this week prompted travel chaos for over 150,000 people stranded abroad, 9,000 job losses and the biggest ever peacetime repatriation by the UK Civil Aviation Authority (CAA). How did it happen?

The company, which employed 21,000 staff worldwide “suffered as customers shifted from the high street to the internet,” wrote the Financial Times. It’s a familiar defence, and one which could have been predicted eight years ago when the business avoided going under by the skin of its teeth.


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The blame game is in full swing. The rise of the internet aside, the weight of a £1.7 billion debt pile was the straw that grounded the planes. The fact is Thomas Cook’s borrowing was too high, leaving many remembering lessons about how operators should fund themselves conservatively. If your balance sheet is fragile, you are at the mercy of seasonal dips, weather, competition and political events.

“There is now little doubt that the Brexit process has led many UK customers to delay their holiday plans for this summer,” said CEO Peter Fankhauser back in May. Whether the October 31 Brexit deadline helped to push the company off the edge of the cliff is open to debate.

Rick Smith, Managing Director of Grimsby-based Forbes Burton, a company rescue and insolvency specialist, said: “Thomas Cook’s debt has risen from what seems to be a run of bad choices when it came to acquisitions. The company kept borrowing to purchase other businesses but these purchases haven’t been fruitful and the debt kept growing. Eventually, the level of debt got so great that it couldn’t be refinanced and the government wouldn’t/couldn’t bail them out.

“If Thomas Cook wanted to save itself from this situation, managers/auditors could have looked into the acquisitions more closely and the effect that they would have on the company overall. There should have been reserves or contingency built into the accounts and planning to lessen the impact of unexpected downturns in business – such as the 2010 eruption of the Icelandic volcano Eyjafjallajökull, which prevented flying and the heatwave of 2018 when people stayed at home for their holidays rather than travelling abroad on package deals.

“Back in early 2018 Thomas Cook was turning a profit and could have started dealing with the debt by raising funds from shareholders. Lessons should have been learnt from the company’s previous brush with administration back in 2011 when it nearly collapsed under £1bn of debt.”

How can other tour operators avoid this same fate?

“It’s all too easy for other companies to find themselves in the same situation as Thomas Cook,” Rick Smith added. “There have been quite a few cases in recent times where the large auditing firms have not picked up major financial problems.

“Regulators need to look more closely at these large auditors. Patisserie Valerie, Jamie Oliver and Carillion all showed ‘black holes’ in their accounts which should have been found and acted on at an earlier point.”