Dubai: Thomas Cook is a household name around the world.
It has a commanding, 178-year presence in the travel business. On Monday, most customers were horrified about their cancelled bookings — and ruined holidays — which they first saw on Twitter.
Events leading to the collapse, and the way it was delivered to unsuspecting clients, show the signs of the times: A death blow in the head of travel trade, thanks to digital disruption.
As a global brand, people equated Thomas Cook with the jet-set crowd.
Its reach was wide, bigger than the once-mighty British Empire itself. With operations in most of the world's leading metropolises, Thomas Cook employed up to 20,000 people.
Its brand value was beyond reproach.
Until Monday, when — like "a bolt from the blue" — it declared insolvency.
Here's what we know about Thomas Cook story so far:
What does it mean when a company becomes 'insolvent'?
A company becomes "insolvent" (unable to pay its debts) if:
- (a) It does not have enough assets to cover its debts (value of assets is less than amount of liabilities).
- (b) If it is unable to pay its debts as they fall due.
It's not clear what prior events led to its ruin. It could only be one of the two above scenarios, or perhaps a bit of both.
One thing is clear: Thomas Cook has come face to face with a monstrous financial rupture.
Reports have it that a $241-million last-ditch rescue operation failed, which saw travel giant fall like a house of cards, another nail in the coffin of venerable firms biting the dust under the weight of corporate debt.
While some, scholars included, also blame Brexit for Thomas Cook’s collapse, others point to a more fundamental reason: The digital disruption of the global travel marketplace.
What is Thomas Cook?
It is a British tour company, with a 178-year history. Before it went belly-up on Monday, September 23, Thomas Cook was considered a “transparent” product.
By Monday, however, its sudden collapse left hundreds of thousands of travelers stranded.
600,000estimated number of travelers currently on vacation around the world with Thomas Cook
Who founded Thomas Cook?
The global travel agency was founded by Thomas Cook (November 22, 1808 – July 18, 1892), an English businessman best known for founding Thomas Cook & Son.
At age 10, Cook started working as an assistant to a local market gardener for a wage of six pence a week. At the age of 14, he secured an apprenticeship with his uncle John Pegg, and spent five years as a cabinet maker.
Cook's idea to offer excursions came to him while "walking from Market Harborough to Leicester to attend a meeting of the Temperance Society".
He arranged to take a group of "temperance" campaigners from Leicester Campbell Street railway station to a teetotal rally in Loughborough, 11 miles away. This came with the opening of the extended Midland Counties Railway.
On July 5, 1841, Thomas Cook escorted around 500 people, who paid one shilling each for the return train journey, on his first excursion.
How many travelers are affected today?
There are currently 600,000 travelers on vacation around the world with Thomas Cook.
How many jobs are affected
About 20,000 jobs are affected worldwide, including 9,000 in the UK, according to British media reports.
20,000number of jobs affected worldwide by the Thomas Cook Group insolvency on Monday
What about those with advance holiday bookings?
There are believed to be up to 1 million people with advance holiday bookings using Thomas Cook's platform.
How did the collapse come about?
Thomas Cook has been in business for 178 years.
Its long, illustrious history, however, failed to shield it from imploding under the weight of debt, digital revolution and Brexit.
The immediate cause was its inability to secure a £200 million ($241 million) lifeline from bankers, including RBS. However, the tour operator’s woes go back much further.
In 2007, the group fell victim to a disastrous merger. Its debts ballooned. It’s a bit like the newspaper business: With the internet revolution — printed classifieds were virtually decimated by listing start-ups. Holiday bookings, on the other hand, have increasingly gone digital, rendering Thomas Cook and others in the travel trade a "has-been" in the industry they helped build.
Is Thomas Cook a victim Brexit?
There's a raging debate on this, too, much like the fierce debate over Brexit itself. But uncertainty surrounding the UK's exit from the European Union is one reason behind Thomas Cook's collapse. In May, the company told the British media that customers had been postponing their holiday plans.
The slump in the value of the pound since the 2016 referendum is also another reason, as it made foreign holidays more expensive for British citizens earning in GBP.
.Earlier this month, political science professor Simon Hix said doubts over Brexit were a critical factor
"Just wondering whether in time #ThomasCook will be seen as the first corporate victim of Brexit, as a critical factor, amongst many of course, was the collapse of the Pound against the Euro and Dollar," he stated in a tweet.
What is the British government doing about it?
A huge repatriation effort has started after Thomas Cook ceased trading with immediate effect.
“Hundreds of thousands of holidaymakers affected by the collapse of Thomas Cook will be incredibly worried, especially if they are currently still on holiday and stranded abroad. The good news is that ATOL protection will mean they will be flown back home free of charge.
“Customers who have already paid and booked for an upcoming holiday with the collapsed travel operator should also be entitled to a refund as part of the scheme.
“However, if you didn’t book as part of a package you might not be ATOL protected but you may be able to claim the cost back through your travel insurance or credit card issuer — it will depend on your circumstances. You can visit which.co.uk for more advice on your rights.” (Source: ATOL)
How are the lenders of Thomas Cook reacting to this?
The Guardian’s Rob Davies has written about how Thomas Cook’s lenders pushed it over the edge by demanding an extra £200m ($248 million) of funding.
Just three weeks ago, the tour operator looked to have secured a £900m ($1.12 billion) rescue package – half provided by Chinese tourism business Fosun, the rest by a mixture of banks and hedge funds.
The debt-for-equity swap was aimed to wipe out of £1.7 billion ($2.11 billion) of loans. This would have allowed the firm pay interest during the barren winter, when less cash comes in because bookings are low.
Then came the Monday lightning bolt — a shock demand from its banks, including state-owned RBS.
Thomas Cook was given a tough choice: find an extra $248 million, or the restructuring is dead. On Monday, it appears that the second option happened.
The BBC estimates that the CAA will have brought at least 14,000 people home by the end of Monday.
How are the customers coping?
Many customers found out only on Twitter that their holiday was cancelled.
It's early days: One report stated it could take up to two weeks to repatriate all affected British tourists in a repatriation plan — known as "Operation Matterhorn" — that is reported to have a potential cost of £600million ($746 million).
Throughout the crisis, customers have been desperate for answers, fearing they could be kicked out of hotels, struggle to find a way home or be left out of pocket if bookings were cancelled.
It seems, though, the British government has the system in place to carrying the largest-scale repatriation of British citizens during peace time.
A Thomas Cook customer in Mahón, the capital of Menorca, was due to fly back to Bristol on Monday morning — but was informed the flight was cancelled. It's the same horror story shared by thousands of others.
But Britain's Civil Aviation Authority (CAA) are on the case. CAA staff were at the airport by 7am to help passengers. The customer will be flown back to the UK on Monday in a chartered Titan flight, albeit six hours late.
The CAA are “playing a blinder”, they say, being very efficient at handling the situation, according to a Guardian report.
What about the customers of Thomas Cook (India) Group?
Thomas Cook (India) Group is an entirely different entity. In August 2012, it was acquired by Fairfax Financial Holdings (Fairfax), a Canada-based multinational investment company.
Following the transfer of its entire stake in Thomas Cook (India) Limited to Fairfax, Thomas Cook UK ceased to be the promoter of Thomas Cook (India) Limited. Since then, Thomas Cook UK has had no stake in Thomas Cook (India) Limited.
"The last seven years have been fruitful as we continue to grow and build our legacy as an independent entity after Fairfax Financial Holdings acquired a 77 per cent stake in Thomas Cook India Ltd. (TCIL) in 2012," Thomas Cook India said in a statement.
What about Thomas Cook in UAE? Is it affected by UK collapse?
Thomas Cook UAE deals with Thomas Cook India, a ‘completely different entity’. Both the UAE and India entities say they are unaffected by the collapse of Thomas Cook Group in the UK.
A spokesperson from Rostamani Travels told Gulf News, “We are not affected because we are affiliated with Thomas Cook India, which is a completely different entity.”
More details here from Gulf News Chief Reporter Ashley Hammond's report.
What happens to Thomas Cook Group now?
The group is understood to go into "administration". The company entered administration when the stock markets opened at 8am on Monday, the Daily Mirror reported.
What does 'company administration' mean?
When companies are unable to pay, entering into administration is often seen as a "punishment" slapped on insolvent companies by the courts. Some outside administrators are appointed, though many company directors choose to voluntarily appoint their own administrator independently.
Administration is a difficult process, especially for company directors. If used properly, however, it offers the best chance of effecting the recovery and successful turnaround of a business.
When a company goes into administration, what happens?
The control of the company is usually passed to the appointed administrator (under British law, an administrator must be a licensed insolvency practitioner, among other requirements).
The administrator’s primary goal is to leverage the company’s assets to repay creditors as quickly and as fully as possible, without preference.
Within 8 weeks following insolvency, the administrator sends out proposals to all of the insolvent company’s creditors. These proposals will typically contain a plan of action that the administrator will adhere to in order to repay debts. It would also contain information about the current status of the company, and the administrator’s anticipated outcome.