The giant travel company, Thomas Cook, is in a race against time to make a deal with its creditors over a refinancing package. Last month the holiday firm appeared to have secured its future. But now the rescue deal appears to be in danger.
Thomas Cook was the pioneer of organised travel – beginning with a Temperance outing from Leicester to Loughborough in 1841. It prospered through the second half of the 19th century and, with allowances for world wars, thrived through much of the 20th century. In 2007 it merged with Mytravel, and is one of the biggest holiday companies in Europe – with operations in Germany, Scandinavia, Russia and elsewhere. But scale and the strongest brand in travel are no guarantee of enduring success.
When did things start to go wrong?
The company can point to everything from the continued ban on flights to Sharm el Sheikh in Egypt to uncertainty over Brexit for damaging its business, but there are longer-term and deep-rooted problems.
The low-cost aviation revolution and a series of corporate misadventures left Thomas Cook badly wounded in 2011, and though it made a recovery it has been struggling compared with its huge rival Tui and the relative youngster Jet2. Thomas Cook has been slow in adapting to the changing market, and creating premium products rather than commoditised cheap and cheerful holidays.
Thomas Cook still has hundreds of High Street travel agencies, a successful airline and nearly £10bn of revenue every year – but running the business profitably has been elusive.
But just three weeks ago, the headlines were reading: “Thomas Cook’s future assured with rescue deal from China”. What has changed?
This is a complex deal in which the travel company was to receive an injection of £900m – half from the Chinese conglomerate, Fosun, and half from its lenders, who were also going to write off around £1.6bn in debt in return for a share of the company. The plan was to shore up Thomas Cook’s finances and see it through the winter – as well as protecting more than 20,000 jobs and millions of holidays.
But those lenders – led by RBS, Lloyds and Barclays – are demanding that it bolster its finances by having an extra £200m on standby to protect against shocks during the winter ahead. The last they want is to have to write off loans.
How long has Thomas Cook got to sort itself out?
One insider says it’s at a “level of criticality”. Two key dates are next Friday, 27 September, when the parties to the restructuring are due to vote on the deal, and the following Monday, 1 October, when its Air Travel Organiser’s Licence is due to be renewed by the Civil Aviation Authority (CAA). But the next few days are also crucial.
September is traditionally cruel to struggling holiday companies, because the bills for the summer become due but revenue is drying up – particularly if people are wary of booking holidays. Fridays are especially tricky, historically speaking, with many failures afflicting travel firms on Fridays in September. They spend the week trying to find a financial rescue, and finally throw in the towel.
A big problem is customer confidence. Travel plans are built on faith. You hand over cash well in advance in the expectation that you will take delivery, ie enjoy the holiday, as planned. If many people stop booking because they believe the company could fail, then the fall in revenue could precipitate its failure – a self-fulfilling prophecy.
The key question for hundreds of thousands of customers with future bookings: is their money safe?
Were the worst to happen and Thomas Cook closes, the vast majority of travellers will be able to reclaim their cash. Many current customers paid for some or all of the trip by credit card. In this situation, the card issuer will be expected to provide a full refund, whether for a package holiday (flights and accommodation bought in the same transaction) or any other purchase.
People who paid for a package holiday with a debit card should make a claim under the Atol scheme, which is administered by the CAA.
For other trips, such as flight-only purchases paid for by debit card, the the first place to seek a remedy is the card issuer. Although there is no legal requirement for debit card issuers to pay out if the supplier collapses, the voluntary “chargeback” scheme should help you out.
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What about the hypothetical case of people who are abroad at the time of a collapse?
Package holidays would continue as normal, with hotel bills paid and new flights provided by the CAA. The estimate is that it could cost as much as £600m for 150,000 people abroad. Flight-only passengers and those for whom Thomas Cook does “third-party flying” will probably also be covered, and in addition, rescue fares should be brought in by other airlines such as easyJet, Jet2 and Ryanair. You can then claim back the cost of the original flight from the credit-card provider or travel insurance.
And a worrying time for staff and shareholders?
Alarming for more than 20,000 staff, nearly half of them in the UK, with the looming prospect of more job cuts if and when the rescue deal goes through.
Thomas Cook shareholders have already been wiped out. Going back 16 months to May 2018, a holding of 200 shares would have been worth £270, enough for a week’s package holiday to Greece: worth £270. Today, those same 200 shares are worth just £9, which might just buy you lunch in a beachside taverna.