How One Company’s Collapse is Affecting Tourism All Over Europe

Finance Tips

As a European tourism giant heads for the exits, many are left wondering if the tourism industry in the region is all but finished. The bankruptcy of Thomas Cook should serve as a warning sign of how failing to innovate in a changing industry can quickly lead to the downfall of even the most well-known companies. And while this isn’t good news for the European tourism industry, it doesn’t necessarily mean all is lost.

Thomas Cook

The good ole’ days

The story of Thomas Cook goes back centuries. Thomas Cook & Son was founded in 1841 as part of the British railway system, helping arrange low-cost travel in England. With an office in London, the company quickly grew, establishing offices around the world by 1888, and selling over 3 million tickets.

The company went through several corporate changes over the years but was still able to retain its success throughout it all. In 2001, the company caught the eye of a German travel conglomerate which purchased it – renaming the company Thomas Cook AG. But this wasn’t the end for the company in its regime changes. Thomas Cook AG eventually would merge with MyTravel Group in 2007 to form a new company, the Thomas Cook Group.

In the most recent two decades, Thomas Cook expanded its business to incorporate more facets of the travel industry in an attempt to stay relevant. In 2008, the company purchased a hotel booking website Hotels4U.com, as well as the luxury travel company Elegant Resorts to add to its portfolio. These moves were part of the company’s last-ditch efforts to stave off an increase in internet-based competitors in the digital age.

What went wrong   

Things started to go south for the company in 2006 when two children on a trip to Corfu booked by Thomas Cook died suddenly from carbon monoxide poisoning due to a faulty boiler.

While this tragedy pulled at the heartstrings of consumers around the world, it also enraged the public to learn that Thomas Cook profited from insurance and legal compensation as a result of the deaths. As a result, customers took to the web to express their anger and distrust for the company, saying they would never book a trip with Thomas Cook again. At first, the company was absolved of any wrongdoing, but an eventual inquiry by the British courts found that Thomas Cook did, in fact, breach its duty of care in this situation, holding them partially legally responsible for the deaths.

After the incident in Corfu, many started questioning whether tour operators were to be trusted with the care of their travelers. This spiderwebbed out from Thomas Cook to the entire travel industry, which quickly came into question. An op-ed in The Telegraph highlighted this issue, while also highlighting the positive changes that have been made as a result. “Tour operators have been forced to take a more proactive line, in particular when assessing the hotels, apartments, and villas they are offering to their clients. Areas such as safety in and around swimming pools, fire escapes, hotel balconies and food safety have improved,” the piece said.

The company faced another problem. Its business model of packaged holiday tours and travel was outdated. In the digital age, it is easier than ever for travelers to package together travel, hotel, tours, and more, with a few clicks on their computer. The head of Ryanair, Michael O’Leary went as far as to say that the package travel industry is “screwed”. This change in the industry led Thomas Cook to steadily declining revenues from 2011 to 2016. Several factors, such as the devaluation of the British Pound and a balance sheet with over £1.5 billion, led to these poor numbers.

With Thomas Cook in financial despair, the company attempted to restructure its finances in order to save itself from a complete collapse. It attempted to work through a £900 million recapitalization, complete with ownership changes and an injection of capital to keep it afloat in the short-term. Unfortunately, this last-ditch effort would not be enough to save Thomas Cook from its imminent demise.

The aftermath

After 178-years in operation, Thomas Cook was forced to file for bankruptcy. In fact, the company’s demise was so abrupt that it left 150,000 travelers stranded without an airline to provide them service. This led the British government and Civil Aviation Authority to hire a fleet of chartered planes to ferry the travelers home. This also put thousands of tourism workers immediately out of a job across the EU.

Bankruptcy

Interestingly, the Thomas Cook name lives on, although not in the form it once took. In China and India, the Thomas Cook brand is being used in a wide array of travel-related businesses, including currency exchange, insurance, corporate travel, visa/passport services, and more. This is because the Thomas Cook brand is owned by different parent companies in these Asian markets who have used the brand in ways more suitable for the current travel industry.

At the same time, private companies looked to capitalize on the downfall of Thomas Cook by purchasing its assets at cheap prices. Easyjet’s chief executive Johan Lundgren mentioned that his company was interested in pouncing on this opportunity. “Of course, like all airlines and tour operators, we will look at what might be of interest to us from the Thomas Cook network,” he said.

Is tourism in trouble?

Today, experts are questioning whether other airlines are in trouble. Norweigan Air, some say, could be the next to fall, as the discount operator provides customers with some of the lowest travel prices in the industry, but does so at its own peril. Norweigan used to operate Boeing 737-MAX aircraft, but had to ground their entire fleet after two fatal crashes involving the aircraft earlier in the year. The company is strapped for cash and has asked its debtors for a two-year extension on paying back £300 million in debt it owes.

Local governments are also working to support tourism that their countries badly need. Following the Thomas Cook debacle, Spain announced it would inject €300 million into its tourism industry to help finance unpaid bills by Thomas Cook to local tourism businesses. Tourism workers will also be given a tax holiday as part of the relief. Meanwhile, other governments across Europe were left scrambling to come up with their own measures to soften the blow.

Eventually, it may not be demand that kills the European travel industry, but its natural resources and ability to keep its most precious sites well-maintained. With more European travelers than ever, cities like Venice are struggling to deal with overcrowding and a lack of resources that come with an influx of visitors.

Far From Dead

Grumblings of a failing European tourism industry couldn’t be further from reality. In fact, if anything, Europe is encountering issues with over-tourism at many of its most popular sites. It’s just that the tourism industry has changed and no longer relies on the outdated model of brick-and-mortar tourism package providers. The internet has made it easier than ever for customers to get an array of travel options and find the best prices available.

European tourism industry

New internet-based tourism platforms are showing why Thomas Cook quickly became irrelevant. The Berlin-based GetYourGuide has already sold 25 million sightseeing tickets, helping it raise over $1 billion in venture capital funding. Other online discount services have ventured into the tourism industry. Groupon’s travel service, Groupon Getaways has thousands of travel options to choose from at discount prices.

Then there are tourism services catering toward subsets of travelers. Alipay has captured a booming Chinese tourism market in Europe, setting up tens of thousands of merchants in the region. Chinese travelers can even get help with their VAT tax refund via Travel Easy and its integration with WeChat.

In this new tourism world, there is a fine line for cities to walk between catering toward tourism and placating its current residents. For instance, cities across Europe are having trouble dealing with Airbnb and other short-term rental platforms which are driving up rental prices in their cities. A joint statement from ten European cities highlighted this issue. “Where homes can be used more lucratively for renting out to tourists, they disappear from the traditional housing market, prices are driven up even further and housing of citizens who live and work in our cities is hampered,” the statement reads.

An industry makeover

Thomas Cook serves as a reminder that even the oldest, most well-known brands must keep up with the times in order to survive. An influx of technology and a changing industry landscape passed Thomas Cook by as it fell to pieces in front of the world.

The question is not whether tourists are still traveling to Europe as much as they did in the past; the answer to that is clear. The question is how the tourism industry will look in the coming decades and whether the region is capable of maintaining the integrity of its most precious sites and resources. In this way, the tourism industry in Europe is far from dead. It’s just going through a makeover.