Thomas Cook has gone belly-up.

[EnterpriseSovereign]

Thomas Cook ceases trading and leaves tens of thousands in travel limbo.

The UK's largest peacetime reprepatriation has been launched after travel giant Thomas Cook collapsed.

An estimated 150,000 tourists are being brought home by the Civil Aviation Authority (CAA) in a programme costing £100 million.

Thomas Cook ceased trading in the early hours of Monday morning after failing to secure a last-ditch rescue deal needed to keep the business afloat.

The repatriation will involve flights from 53 airports in 18 countries.

Holidaymakers already abroad will be flown home as close as possible to their original return time and date, but all future Thomas Cook bookings have been cancelled, affecting around one million people.

The majority of the £100 million cost of the programme will be met from funds held by the Atol scheme, with the Government also making a contribution.

Atol provides protection to customers on package holidays when travel firms collapse, although passengers who made flight-only bookings with Thomas Cook are also being brought home at no extra charge.

Link. It had been in the news months ago about being in dire straits yet customers still went with them regardless.

[mr friendly guy]

I am hearing the 150,000 customers stranded but also 600,000 customers on Thomas Cook vacations, both from the same article.

What gives? Are the other 450,000 just holidaying in the UK and expected to make their own way back?

[Zaune]

I am hearing the 150,000 customers stranded but also 600,000 customers on Thomas Cook vacations, both from the same article.

What gives? Are the other 450,000 just holidaying in the UK and expected to make their own way back?

Not everyone staying at one of their hotels will have flown out on Thomas Cook's own chartered planes, so their return tickets will still be valid. Besides, it's not like short-haul flights to the UK are all that infrequent or expensive; a lot of people can and probably will make their own arrangements rather than wait for the consulate to sort it out. The travellers who are genuinely stranded are mostly going to be families with young children or people with mobility or other health issues who need to make special arrangements with the airline.

[His Divine Shadow]

One down, so many more to go.

[Starglider]

Only inertia and brand loyalty from over 50s managed to keep it going this long. They went on an expansion spree circa 2008-2012 without actually consolidating the acquisitions, resulting in >1000 high street shops at a time when it was already blatantly obvious everyone was heading online. The ridiculous debt structure from all those buyouts left the company hopelessly vulnerable to downturns, given the volatility of the travel industry it was just a matter of time after that.

[K. A. Pital]

Capitalists fail so hard. The best capitalist today is the one who sells air without employing a single person. Of course the idea of a company with lots of retail sales employees is a dead-end because of the Internet. No matter how old the brand is or how loyal the old customers, capitalism is always upheaval and chaos.

Also, packaged tours are a relic when workers had higher purchasing power per head and the fiction of a “middle class” was still breathing. Now dead and buried.

Who can afford those tours? Certainly none of the people I know. Airbnb and hotel aggregators offer the only more or less reasonable alternative if you don’t want to blow half of your yearly savings on one year’s vacation or something like that.

Old guys just can’t keep the thing afloat even as they have hoarded more wealth than ever.

[mr friendly guy]

How expensive are Thomas Cook tours anyway? I have gone on a prepackage tour before and planning to go again, although the company G Adventures is one of the cheaper ones as far as I can tell, even though you stay in hotels rather than hostels, but you have to share.

[Starglider]

How expensive are Thomas Cook tours anyway?

Mid-priced, they were in the 500 to 1000 GBP/person/week range for popular European destinations. The problem was not so much the absolute price, which is affordable to the majority of working adults, it's that customers rapidly became more price sensitive and more willing to try unfamiliar vendors or just organise a holiday themselves as web use proliferated. The combination of legacy cost structure (from multiple acquisitions as well as the original Thomas Cook one) and high debt repayments (even at the current ridiculously low interest rates, showing just how ill-advised the acquisition spree was) left the company unable to discount sufficiently to be competitive. In retrospect they should have trimmed costs / focused on margin, waited a few years for the weaker competition to go bankrupt due to internet disruption, and picked up their useful assets at fire sale prices, instead of binging immediately as soon as the post-crash cheap credit spigots turned on. To be fair the management team probably didn't expect the cheap credit / ZIRP to last as long as it did; most people didn't in 2008-2010. The narrative at the time was that economies of scale were everything, and they probably thought that an acquisition spree paid for by some medium-maturity bonds would allow them to sweep up the market share of the competitors who didn't consolidate (and went bankrupt due to lack of economies of scale) and thus raise enough revenue to taper off the debt, or at least keep their credit rating high enough to avoid credit derate and spiralling refi costs. Of course the ignorance of internet disruption consequences (already well underway even before AirBnB exploded) is inexcusible, though hardly uncommon for 2000s legacy economy CEOs.

[Broomstick]

Of course the idea of a company with lots of retail sales employees is a dead-end because of the Internet.

There will continue to be a market for direct human-to-human interaction... although it will be much smaller than before.

No matter how old the brand is or how loyal the old customers, capitalism is always upheaval and chaos.

True.

Also, packaged tours are a relic when workers had higher purchasing power per head and the fiction of a “middle class” was still breathing. Now dead and buried.

Who can afford those tours? Certainly none of the people I know. Airbnb and hotel aggregators offer the only more or less reasonable alternative if you don’t want to blow half of your yearly savings on one year’s vacation or something like that.

Savings? What's that? Most Americans don't have savings.

Why? Well, aside from daily living above their income, they'll also do things like blow half their year's income on one vacation.

Not sure how strongly that applies to UK vacationers.

Think the cruise industry appeals to those sorts, the ones that still want "package deals", but you can arrange these through the cruise companies. And the internet.

Frankly, my first reaction on hearing about this was "there are still travel agencies?" Thought they had gone the way of buggy-whip makers. Well... guess that have as of this week?

[K. A. Pital]

There’s still TUI, but who knows for how long.

[Broomstick]

The problem is that the only way for companies in a becoming-obsolete-industry (like travel arrangements) to survive at all is to downsize in a manner that keeps institutional knowledge and skill intact and targets the shrinking customer pool... which is the exact opposite of what capitalists are taught, that they must forever be expanding. It is almost impossible to do. (There is a shoe repair shop in my area that is managing it, mostly by specializing in repairing women's expensive high heel shoes and some other minor repairs and avoiding resoling men's shoes or workboots, which are material and time intensive and thus almost impossible to profit from, especially with new boots on sale often being cheaper than repair).

So, if Thomas Cook had had 20/20 foresight and downsized to focus on high-end or specialty group tours, targeting people with ample money used to "outsourcing" tasks they might have survived... but they did the exact opposite. Because that's what entrepreneurs/CEO's are taught to do.

On a more personal level - I've been criticized for remaining in my current job, being told I could "do more" and am overqualified. From MY viewpoint, I want some stability in my life (the opposite of that upheaval and chaos previously mentioned), I have health care coverage, I make sufficient to pay my bills, put some aside for retirement, even have a >gasp!< savings account, and I'm only working 40 hours a week, allowing me time and energy for other things I find important. Among which: I am STILL going through the decades of stuff piled up by my spouse and me which I feel a need for moral purposes to recycle/sell/re-purpose as much as possible rather than just adding to the local landfill, time for my art and writing pursuits, time to play my piano, and time to simply relax and enjoy life. Sure, more money/space/stuff would be nice, but I don't need it, and I don't buy the notion that every waking moment should be spent in ever-expanding "productivity" or whatever we're calling it this week.

I don't think I'm a socialist on K.A. Pital's level, but I may have to turn in my True Blue Capitalist Card.

[mr friendly guy]

Thanks Zaune and Starglider for the info.

Looking at the conversion, 1000 GBP per week converts to around $1800 AUD, and I tend to go on 2 week tours, so that $3600 AUD. I assume Thomas Cook also provides the planes, so yeah it looks pretty decent fare if you're working. It depends on what you want out of a tour. I have gone on both guided tours, or explored by myself, or my favourite explore with a friend overseas like how KA Pital showed me around Frankfurt and Edi showed me around Helsinki.

I can understand though, that it would be cheaper to organise places yourself and that would have hurt Thomas Cook's bottom line, but I guess that would depend how adventurous you are. Perhaps the over 50s Starglider referred to are less likely to do so. Generally though, in a country where I can either get away with English (eg Nordics) or speak enough of the language to bluff my way through (China) I don't mind going without a tour operator. In countries where I have no clue how to speak the language and cannot get away with English (eg South American countries) I am going on a guided tour.

[K. A. Pital]

2000 per head sounds like a lot if one has dependents, though. Thousand quid per week is a lot, especially in Europe, where so many destinations are within reach by car and flying is mostly not needed. Over 4000 quid is a big sum for a worker with family (plus, if there’s more than 1 dependent, you’d be looking at a 6-8k package very likely).

But it is not the cost alone, also the concept is dying out with its users (older generation likes guided more because many were not multilingual, maybe a bit stressed being alone in a foreign land etc.) Travel insurance almost became obsolete with the pan-European insurance, which is also a point towards that we are dealing with a big shift, one that is not easy for companies to survive.

[LaCroix]

... Travel insurance almost became obsolete with the pan-European insurance...

As I am coding software for Insurance companies worldwide, I must strongly disagree... Assistance and Travel are THE business.

[K. A. Pital]

Travel outside EU, sure. But for shorter trips inside the EU?

[Starglider]

The problem is that the only way for companies in a becoming-obsolete-industry (like travel arrangements) to survive at all is to downsize in a manner that keeps institutional knowledge and skill intact and targets the shrinking customer pool... which is the exact opposite of what capitalists are taught, that they must forever be expanding.

This isn't quite correct. In some sectors and times there has certainly been an overwhelming focus on economies of scale and/or market share and thus growth rate and mergers. Generally though directors are trying to increase company valuation and earnings per share, the later being derrived directly from net margin, the former also including the various metrics and intangibles that go into the price-earnings ratio. Most boards are happy to take a small revenue hit in return for a large cost reduction and indeed take any opportunity that presents itself to justify this ('adjustments to challenging trading conditions etc'). Going upmarket is a perfectly valid strategy for increasing net margin even though gross income has reduced, and many companies have given it a try. The major impediments are the entrenched beurecracy and middle management empire-building of large organisations, and where applicable government restrictions on the rate of employee divestment, not so much upper management unwillingness to downsize (indeed downsizing/rightsizing/buzzword of the day is a perennial consultancy favourite, particularly as the main thing the consultants have to do is accept blame in return for a fat fee).

I agree that accepting a permenant, deliberate reduction in valuation and/or earnings per share is 'almost impossible to do'. For one thing very few senior managers would want to be known for that.

[ray245]

I agree that accepting a permenant, deliberate reduction in valuation and/or earnings per share is 'almost impossible to do'. For one thing very few senior managers would want to be known for that.

I wonder what could be done to encourage or at the very least, not discourage senior managers from doing so. Being allowed to reduce the over valuation of companies could allow less risk-taking if certain business models are no longer well suited for a large market share.

[Starglider]

I wonder what could be done to encourage or at the very least, not discourage senior managers from doing so. Being allowed to reduce the over valuation of companies could allow less risk-taking if certain business models are no longer well suited for a large market share.

I can think of various possible changes to the legislation around corporate governance that would help, but at this point it's hardly relevant. Central banks around the world have been cheerleading nearly every form of financial risk taking since the start of this century, going into overdrive after the financial crisis. The minimal regulation around consumer loan eligibility and bank capital ratios has been insignificant compared to the tsunami of cheap credit that has funded speculative bubbles in nearly every asset class, along with pump and dump scams on an epic scale (see: We Work), ever more leveraged buyouts, acquisition sprees and a historically unprecedented level of share buybacks. Zero (or in Europe, negative) Interest Rate Policy has the express goal of faking genuine economic activity by forcing everyone out of savings and into ever riskier investment classes; and when that runs out, printing money and handing it to the worst offenders. You can't even frame this as a scam perpetrated by the finance industry on the rest of the economy; many large banks have and are taking a major hit from it (the ones still relying on the legacy business model of deposit/lending and long/short interest spread). By a huge margin, the easiest way to reduce risk taking is to reign in credit... but then a huge raft of economic problems that have been ignored and papered over by postmodern central bank economists would come back in full force. Obviously no politician wants to be responsible for the ensuing crash.

[LaCroix]

Travel outside EU, sure. But for shorter trips inside the EU?

Destination is mostly irrelevant - most of the European business in Travel is for European trips.

[K. A. Pital]

I can’t help but wonder who purchases insurance for an intra-EU trip, because the European medical insurance card issued by a EU member allows access to medical services inside other EU nations as if I were insurer locally. Maybe for business trips? Although this should be covered by workplace insurance of the company...

[LaCroix]

I can’t help but wonder who purchases insurance for an intra-EU trip, because the European medical insurance card issued by a EU member allows access to medical services inside other EU nations as if I were insurer locally. Maybe for business trips? Although this should be covered by workplace insurance of the company...

Travel insurance covers a lot more than medical - Lost luggage, repatriation for "less-than-severe" medical issues, cancellations, overbookings, breakdowns, etc. Medical is a tiny tiny fraction of it, and usually only when travelling out of Europe, for said reasons.

[Zaune]

That also includes services that local medical services don't cover, most notably transport expenses if you're too injured to return home on a normal flight.

[K. A. Pital]

I see. I found that the clauses of the typical „one-click add to your ticket“ contract are such that you actually can’t get a compensation for trip cancellation unless really caused by death or severe illness (I‘ve had work interfere with vacation plans... and the insurance was useless, so this was the first and last time I‘ve ever had „cancellation insurance“). But if people use it, OK.