Thomas Cook’s bankruptcy was all over the news in the last week of September. The travel giant employing 22.000 people worldwide (BBC, 2019a) failed to keep up with the digitalization of its industry and had to cease operations. New entrants, such as Booking.com, Airbnb and Expedia disrupted the travel industry with digital platform solutions. Thomas Cook is the first analogue giant we see to fail but probably not the last one.
The 178 years old conglomerate started off in 1841 by organizing railway outings for the members of the temperance movement in Market Harborough (BBC, 2019b). The company’s core competence remained the same ever since. Thomas Cook was organizing journeys for the public taking care of every little detail. The package tour concept required a vertically integrated firm managing flight, hotel and restaurant bookings and arranging activities for the traveling customers. As BBC (2019b) notes, the company diversified in the early 2000s’ and started to operate its own airline managing a fleet of 34 aircrafts as of 2019.
Financial markets have been signalling the potential catastrophe of the firm. Their stock price has been sharply decreasing from 136 GBP in May 2018 to zero by September 2019 (yahoo! finance, 2019). The firm has been struggling with restructuring itself while analysts were worried about the frequent exceptional one-off items on the P&L accounts which is always a red flag (BBC, 2019b). Thomas Cook accumulated £1.7bn debt and announced the need to secure £200m of extra funds to prevent bankruptcy (Bailey, 2019). Financiers have lost faith and refrained from further investments.
What were the root causes of the flop of this established British giant with a strong brand and huge customer base? The travel bookings business has moved online at a glance, but Cook’s business remained offline, operating 600 physical stores (Sims, 2019). In the pre-online era Cook’s business model was based on filling the information asymmetry between travellers and destinations. The rise of internet penetration and online platforms dramatically cut search costs for the end users. Thomas Cook also functioned as a platform. A platform far behind its online competitors in efficiency and scalability. Providing trustworthiness also ceased to differentiate the company from competitors as people rely on online review sites such as Yelp or Tripadvisor nowadays.
Besides missing the digital transformation of its industry, Thomas Cook also failed to recognize that changing consumer tastes made their package tour proposition less and less appealing. Millennials admire freedom and prefer to plan their trips themselves. Online competitors decoupled Cook’s business model and youngsters prefer to put their itinerary together using multiple service providers. No doubt that it is hard to imagine a group of teenagers sitting in a Neckerman office flicking through a magazine before consulting with their designated travel agent on which flight to chose for the weekend’s trip.
References
Bailey (2019) Thomas Cook Goes Bankrupt Leaving 600,000 Passengers Stranded https://simpleflying.com/thomas-cook-goes-bankrupt/
BBC (2019a) Thomas Cook collapses as last-ditch rescue talks fail https://www.bbc.com/news/business-49791249
BBC (2019b) Thomas Cook: What went wrong at the holiday firm? https://www.bbc.com/news/business-46452374
Sims (2019) How Could Travel Giant Thomas Cook Fail? https://www.nytimes.com/2019/09/23/travel/why-thomas-cook-travel-collapsed.html
yahoo! finance (2019) Thomas Cook Group plc (TCG.L) https://uk.finance.yahoo.com/quote/TCG.L
