News & AnalysisNewsletter

Collapse of Thomas Cook: Lessons for CXOs?

Thomas Cook

Shakespeare’s famous quote “What’s in a name?” may not apply to an enterprise as famous as Thomas Cook. When news broke of the world’s oldest and largest travel company’s imminent collapse, there was hardly anyone who didn’t stop and mourn. Though Indian operations of the giant are unlikely to be affected by this meltdown, there are lessons in there for our enterprises.

Thomas Cook has been in business since close to 178 years but last Sunday when reports spread of its collapse, there were some 600,000 vacationers stranded as their dream destinations turned into nightmares. Not to speak of 22,000 jobs that could just vanish without a trace across the world.

Founded in 1841 and named after the businessman Thomas Cook, it had shaped itself into a huge brand in the travel industry. But after so much of success, what went wrong?

Behind the Scenes

Contrary to popular belief, enterprises do not collapse all of a sudden, as it hit by an earthquake or a tsunami. In most cases, there’s a long gestation period before the edifice cracks and in the case of Thomas Cook, this can be traced back to 2010 when the company first began battling financial issues in the wake of the Arab Spring when tourists were discouraged to crisis-affected geographies.

A post in quoting travel and tourism guru Dr. Neil Robinson from the University of Salford Business School makes this suggestion.

“The downturn in bookings post the Arab spring back in 2010, saw profits drop as people were reluctant to buy travel product associated with this region and the seeds of change for Thomas Cook and the wider travel sector were already being sown.”

“Fast forward a few years and the sector has come under many pressures associated with very slim profit margins for each travel product sold, a possibility of too many players in an already saturated market and one might argue that the product mix on offer at Thomas Cook did not align with what its customers really wanted. Their price, promotion and how people actually booked Thomas Cook holidays did not keep pace with changing technology and demand, for example they still had a lot of high street outlets, which incur rental and other costs,” he summarises.

After falling so hard, the company did try to find its feet with strategies like “a strong pipeline for 2019”, but guess it was too late as they were neck-deep in trouble with mounting debts and a payment crisis. In its annual report, Thomas Cook revealed it accumulated a debt of £1.242bn by mid-2019, a slump compared to the previous half year which had reached £886m.

On Sunday, the UK government’s refusal of a 200 million GBP bailout proved to be the last straw. Of course, that amount would’ve hardly been sufficient to clear off all the company’s debts. The actual magnitude of losses from this collapse is going to be well beyond one’s imagination.

While it leaves 600,000 vacationers in despair, it leaves thousands of jobs at risk and employees have nowhere to look at. Thousands of customers are waiting to hear from the company about their cancelled holidays while the hotels which work solely with the company are also perplexed about the future discourse.

But, that’s not all. There are bound to be question marks on national economies that rely heavily on tourism as well as sectors that support it, like the transportation business. For instance, Turkey’s economy which heavily relies on the tourism sector is going to be impacted deeply. The same goes for the boarding and lodging infrastructure.

A resort in Goa which was expecting its first lot of 2000 guests somewhere in mid-November is sitting tense. “We haven’t heard anything from the company so far and are attempting to get in touch with our contacts. On an average we get between 8000-10000 visitors from the UK via Thomas Cook between November and February,” says the official who manages the resort in north Goa.

According to Dr Neil Robinson, “Whilst the collapse of Thomas Cook underlines the vulnerability of the travel sector, in which the industry encapsulates a saturated market, the liquidation of the company could also potentially foreshadow the upcoming of a decline in travel agencies.”

Questions for the CXOs

The story definitely raises multiple questions for the industry and the CXOs. The first of them is quite obvious: Is there a leadership crisis in the industry that suffers from myopia? The debt of £1.242bn should have worried any leader and every boardroom.

How could the banks, auditors and lawyers not foresee the potential risks while they were collecting massive fees and company was continuing with the acquisitions? Was the boardroom unaware or were they in the utopian world wishing everything to restore back on its own while they were busy “strategizing” to grow the business? Is this like waking up to an ugly capitalist morning? CXOs are in the need of contemplating on these lines.

CXOs are clearly in the need of being aware of what happens outside the boardrooms and imbibe the need of walking with the changing times. The collapse of Thomas Cook would not have been this harsh only if the directors had chosen to transform themselves with the changing technologies. The times are evolving and one who fails to evolve hand-in-hand with technology is likely to wither away.

Leave a Response