Thomas Cook Airlines on sale, what went wrong with the world's oldest tour operator?

  • Profit warnings due to disruption in the travel market
  • Market capitalisation wiped out as shares fell more than 80% in a year
  • Closure of Club 18-30
  • Airline business sale announced


Thomas Cook, the world’s oldest tour operator and a 177-year-old company is currently facing difficult times. Founded in 1841, Thomas Cook is a leading global travel group having tour operator, airline and hotel businesses with an annual sale of GBP 9.5 Bn, 22 Mn customers and 21,000 employees operating in 16 countries. A series of turbulences buffeted the British tour operator after the second half of 2018. Moreover, since September 2018, following an announcement of the first profit warning by the company, its shares have tumbled by more than 70%. Currently, the company is saddled with more than GBP 1.58 Bn in debt, which is nearly four times its market capitalisation.

What went wrong?

There is a number of factors which cast grey clouds over Thomas Cook from financials to market disruptions by online bookings to even meteorological reasons.

The global travel market is facing disruption by budget airlines and online bookings. Traditional tour operators like Thomas Cook, which owns costly brick-and-mortar stores are facing the heat of competition with online travel booking companies due to ease and transparency. While customers want to see what rooms or facilities they are being offered at the time of bookings, they also prefer the option to bespoke their holidays and modify their plans while booking for travel. This results in a preference for online bookings nowadays. Similarly, budget airlines are more economical to fly for travellers, who want to spend more on the travel experience rather than the travel mode.

Secondly, while WTTC (The World Travel & Tourism Council) forecasts a slowdown of growth in the Eurozone, the IMF (The International Monetary Fund), owing to continued uncertainty on Brexit, forecasts an economic slowdown in the UK. The weak pound has also spoilt the enthusiasm of European peripatetic. The torrid summers in European countries last year further strained the situation. According to the company’s report, the travel demand from its European source markets tailed off in the fourth quarter as hot weather-induced customers to delay their bookings and enjoy summers at home. This resulted in an oversupply, and more competitive pricing market than usual with heavy discounts to lure customers, bookings in ‘lates’ (meaning: in the season when holidays are cheaper) and ultimately lower margins to the company.

Profit warnings and debt burden

While market disruption and cyclical problems caused malaise in the travel industry, Thomas cook is not alone, which has issued profit warnings. TUI, the world’s biggest tourism group, which hold two-thirds of the European package holiday market along with Thomas Cook also issued a profit warning in late March 2019. But TUI also has cruise and hotel businesses, which generate a third of its profit, and by an early adoption to the ongoing structural changes in the market, its profit and margins barely budged, while Thomas Cook reported GBP 163 Mn loss in 2018 FY.

Additionally, its total debt burden mounted to GBP 1.58 Bn by the end of the first quarter of FY 2019 against a market capitalisation of nearly GBP 350 Mn only.  A scenario of negative free cash flow in FY 2018, with the EBITA to interest cover reaching a 1.02x level and ongoing challenging market, it is envisioned that more difficult years lie ahead for the British tour operator. Thomas Cook has now cut its profit guidance and has suspended its dividend. Furthermore, Moody’s has downgraded Thomas Cook’s rating to B3 from B2 (2019) amid its weakened liquidity profile. The price of Thomas Cook bonds also tumbled as the cost of insuring its debt against default on payments hit a record high indicating concern about the firm’s ability to pay it back.

Thomas Cook's strategic plans

Thomas Cook has announced its plan for 2019 to improve its margin and free cash flow amid ongoing financial crunch in the company. It is revamping its business since the first profit warning in 2018 to focus on high margin business of its own brand hotels and its main business of package holidays. A series of actions were taken by Thomas Cook:

  • October 2018, it retired its Club 18-30 after failing to find a buyer.
  • February 2019, airline business was put up for sale.
  • March 2019, it announced a review of its money division and closed 21 high street stores in the UK.
  • In early May 2019, it is in advance talks on securing up to GBP 400 Mn new borrowing (Source: Sky News) to avoid any cash crunch and provide a cash cushion during winter (2018/19) season for which bookings are already down by 2%.


Airline on sale

In order to repay its debt and get financial flexibility, the company announced the strategic review to the sale of its airline business in February 2019 so that it could focus and invest more on high margin brand hotels and further digitise its sales channels to improve online holiday offerings. Thomas Cook Airlines business consists of Condor; a German long-haul airline as well as British, Scandinavian and Spanish operations with a fleet of 103 aircraft. Thomas Cook Airlines business has some valuable lucrative European slots linking Britain to Spain, Greece and Turkey, which has drawn the attraction of bidders. Investor community was speculating on prospective bidders including Lufthansa, Indigo Partners, easyJet and others, then Thomas cook finally received an offer from Lufthansa for its German airline business, Condor on 7th May 2019. According to industry experts, it was unlikely that a single buyer could acquire all airlines of Thomas Cook due to antitrust regulation.

Thomas Cook woes have not ended yet

The sale of Condor Airline to Lufthansa could get support for repaying its debt and improve the liquidity, but there are still concerns about its more competitive and price sensitive short-haul business for which potential bidders are yet to be confirmed. In addition, there is uncertainty on valuation and timing. Further, Thomas Cook’s airline business support its holiday business with 9.1 Mn internal customer, which is almost 40 percent of customers that travels using all of Thomas Cook offering including holiday packages, hotels and flights. Hence, if entire profitable airline business is sold, Thomas Cook would not be able to bundle up tours and flights, putting an expectation on commitment from buyers of airline business to maintain seat availability for holiday package customers.

The uncertainty does not stop here. According to the Sky News, the company has also been approached by others, which are interested in Thomas Cook holiday tour operations and even the entire company. As per a report, the Chinese giant Fosun International, which is the largest shareholder in Thomas Cook with a 17% stake and is interested in its tour business. While the company has now hired a consulting firm for the restructuring plan to work on its balance sheet, reduction of costs to tackle its piling debt and to maintain liquidity headroom for the coming winter season, a group of lenders are also taking advice from another consulting firm on their financial exposure to the company. 

The entire seasonal holiday and travel sector is facing high competition amid disruption from an online and stark price war. Especially, the European market has been affected badly. While holiday airline Germania ceased operation this year, easyJet also issued a slower sale outlook apart from profit warning from the TUI. Thomas Cook could prove to be an attractive buyout with slashed valuation after shares fell to its lowest levels in the last five years, but prospects do not appear to be bright.

Your Rating

Slack set out to kill E-mail

Started as a side project for internal use in a gaming company High revenue growth with recurring revenues Went Public by offering shares through the Direct Public Offering ...

Tire manufacturing industry, analysing the cost and margin trends

The global market for tire manufacturing stands at $180 billion. Michelin anticipates the long-term demand to rise at the rate of 5 to 10% a year in developing markets and 1 to 2% a year in mature...

Rapidly growing Indian online food delivery industry and its unrealised profits

Evolution of online food delivery industry in India Geographical penetration and scope for expansion Key players and their zeal to balance revenue and costs   Online...

An analysis of Malaysian rubber glove industry

How big is the international rubber gloves market? Reasons behind the healthy and steady growth Malaysia’s role in the industry Why are companies struggling for stable...

Failure of Amazon in China, an analysis

E-commerce market in China Online consumer product retailers in China Performance of Amazon in China   Amazon is a global e-commerce player selling a wide...

Can lithium-ion anode demand for needle coke reduce availability for electrode players?

What is needle coke? Uses of needle coke Lithium-ion battery manufacturers demand needle coke   Needle coke? Needle coke is a specialised form of petroleum coke...

Is the radio broadcasting industry in the U.S. dying? An analysis

Radio, the most powerful medium of reach in the U.S. Why the industry is moving at a slow pace? Radio’s health is still sound, will it continue in the long-term?   ...

Carbon black industry, strong potential for supernormal profitability?

What is carbon black? Its uses Impact of the environmental curbs in China   What is carbon black? Carbon black is a fine carbon powder and it is a disorderly...

Housing finance market in India. Is affordable housing driving the growth?

Overview of the housing finance sector in India Key players dominating the segment and their dynamics Factors driving aggressive demand for housing   The housing...

Indian wood panel industry, growth drivers and present trends

Current market scenario in the Indian plywood industry Growth in the housing sector and rapid urbanisation to provide the boost GST rationalization to reduce price difference...

Sri Lankan economic and political crisis

Sri Lanka’s latest political crisis, who governs the nation? Poor economic indicators adding to the nation’s woes   Sri Lanka is currently embroiled in a political crisis,...

Blockchain, an emerging concept, a disruptive technology (Part 1)

What is blockchain? How is blockchain revolutionary? Cryptocurrency, the new money ICOs, the new way of raising money Summary Blockchain is a software architecture...

Rice industry outlook 2018

Major rice producers and consumers Global rice trade Factors dominating the trade   Rice is the 3 rd largest produced agricultural commodity in the world, after...

Rise of Ant Financial, will the success story continue?

What is Ant Financial? Journey to become king of unicorn Will regulatory curbs hinder its success journey?    Ant Financial, an affiliate and integral part...

Malaysian rubber glove industry, an update

Rising global demand for gloves Impact of USP 800’s implementation and the US-China trade war on Malaysia’s rubber gloves industry Key challenges for the Malaysian rubber...

Unnoticed growth of the media and entertainment industry in India

Overall industry brief Growth of the M&E industry and its segments Major supporting elements of this growth   Media and Entertainment (M&E) is a very wide industry...

Battle for the textile and apparel industry in Southeast Asia

The reasons for China’s decreasing presence in the industry Initiatives by the governments in Southeast Asia to boost the textile trade Vietnam and Bangladesh’s quest to conquer...

Baidu’s Apollo, the underdog of autonomous driving platform

Overview of the autonomous vehicle sector in the global automobile industry Search giant Baidu’s entry into the autonomous driving space Baidu’s approach in becoming a front-runner...

OYO Rooms, an Indian start-up to enter Japan

Growth story of OYO Rooms in India Business model of OYO Rooms Analysis of strategy to enter Japan   OYO Rooms, the Indian start-up has decided to venture in Japan...

Education industry in India, an overview

Growth of private universities in the nation Future potential of the education industry in India   The education sector in India is estimated to be worth USD 91.7 billion...