The failure of Thomas Cook, a huge travel brand, should be a warning to all tourism companies about the dramatic changes in tourism today. The lessons from Thomas Cook’s failure should not be ignored. In this summary, we look at several news sources and analyses. The company cites the instability of some prime destinations as the cause of the financial burn. But the business model has been in decline for some time and many other factors have added to the problem. Not least of these is the Digital Revolution.
From Trains to Planes & Bricks to Clicks
From its early roots of organizing rail travel around the UK in 1841, TC jumped into the world of international travel, buying MyTravel in 2007. To compete with Online Travel Agents (OTAs) and its arch rival TUI, the company needed to invest heavily in building up its IT. That turned out to be far more complex that anticipated. A £100 million project with IBM ran into trouble while undertaking the massive task of integrating the many brands.
The marriage of online and retail was an obstacle that OTAs did not have to worry about but it put TC at a disadvantage in adapting to the competition. It also led to confusion and lack of clarity in its digital media. The project was abandoned in 2011 with £86 million in losses.
Digital Technology – Changing Faster Than Thought
It’s hard to believe that, after all of that, the company leadership still believed that they could compete and beat Expedia. That objective was pie in the sky and the digital marketing ambition failed. In 2018, the company concluded that building an online booking engine was more difficult than expected. It was not just about the booking engine, the entire marketing system had to compete with the growing sophistication of the OTAs. The systems and digital marketing technology were dynamic and always changing and they required insight and know-how to use them effectively. But that was not their forte. In that year, it agreed to use Expedia technology for its bookings. Source Phocuswire. That may have been a step in the right direction but it was not the solution.
According to Capx, “The main reason the company failed was its outdated business model. Thomas Cook offered comprehensive holiday deals which would include flights, accommodation, and transport to and from the airport. It could even organize your wedding. It was a convenient and affordable way to book a holiday. However, given the number of price comparison sites now available, the idea of popping into the local travel agent’s to speak to somebody about booking a holiday seems almost unthinkable”.
How Mindset and Status Quo Kill Innovation
It’s now clear that Thomas Cook misjudged the challenges of the new technology. It simply did not understand the digital landscape and miscalculated along the way. In the face of rapid change in technology, it is often the well-established that lose. Legacy systems do not change easily and the mindset around them is often deeply entrenched. Often stakeholders are blind to the threat and the need to innovate.
According to Joseph Schumpeter, when new disruptive technologies emerge, “the companies which do not adapt will be destroyed, but those that do will thrive.” Technology replacement represents progress. “Although there is destruction in the short term, there are also increases in productivity which brings economic growth and prosperity.” See more on Schumpeter’s Creative Destruction
It’s not that Thomas Cook did not try to reinvent itself. Turnaround Specialist, Harriet Green, came in as CEO in 2012, implementing ruthless cost-cutting. Her style did not go down well with the Old Boys’ Club of traditionalists. This is the perfect example of how legacy systems do not change easily: Mindset and the Status Quo Kill Innovation.
Failure to Adapt to The Digital Age
The UK Telegraph puts it succinctly when is states: Thomas Cook was ripped apart by the Internet! The idea that ordinary travellers can build their own customised packages with a few clicks was just incomprehensible to the Old Guard. But it gets far more complex than vision. It misjudged the level of effort and had a leadership that did not understand the new playing field.
Thomas Cook was never an innovative company. It put things together, created travel packages that were difficult for travellers to create themselves and made it all affordable. But by not trying to understanding the new media, it could not adapt. Maybe it could not have survived the Digital Age, as the new media was now doing a large part of its job.
Books & Training Abound
Perhaps the company should have invested in training its leaders in the mechanics of the new digital technology. Just buying an easy-to-read book that puts digital media into perspective might have been helpful. Hotel and hospitality managers, owners and tourism marketers simply have to know what’s going on with digital media. It is the prime media for marketing travel today and has overtaken TV and all other media.
A search on Google or Amazon for ‘digital media for hotels and tourism’ will show many titles. There is no shortage of excellent literature, training courses and videos.
Struggling Under Massive Debt
TC was hoping to secure a £900M rescue package with Chinese tourism business Fosun, as well as with various banks and hedge funds. The investment would pay off £1.7BN of loans and free up cash to apply to operation and paying interest. But the banks demanded that it must find an extra £200m. “That is insurmountable!” they say. Alex Brignall, Travel and Leisure Analyst at City stockbroker Redburn, says that it’s very worrying as “September should be the best point of the year for the cash balance. The demand suggests the company has taken a big hit from all the negative publicity, and is facing additional working capital stress.” Investors were running away from the deal!
The reason why it got to the point of debt goes back to 2011, when it went to administration for support. The money it borrowed resulted in £1.2BN in interest. That’s more than a quarter of the revenue from the 11 million holidays it sells annually. It’s just not sustainable. A valuable brand and its assets were on the block.
The Role of Package Holidays
Some analysts point to the fact that the package holiday may have had its day and it’s a tired model that TC was struggling with. This is not entirely true. In fact, Thomas Cook says it’s a vital and growing sector. “The number of Brits opting for all-inclusive package holidays has increased steadily over the last four years and accounted for 65% of our bookings this summer.” Chris mentions some factors behind the trend including uncertainty over exchange rates and costs. In an ironic twist, he adds: “All-inclusive bookings for this winter are already up 11% compared to this time last year.” – Chris Mottershead, Thomas Cook Chief of UK.
Tour Operator, On the Beach, agrees. “Package holidays accounted for 91% of all bookings so far in 2019. Up from 87% for the same period in 2018.” Source: TravelDailyNews
It is true that there are many alternatives today! We have many discount airlines and online booking sites that make it easy for travellers to package a vacation on their own. It’s also true that many travellers today are looking for more unique experiences and travel brands big and small are working to personalise the vacation experience.
The point is that the the market is diversified. It accommodates many options and that trend will continue. The options are not mutually exclusive. Personalised packages are also a growing sector. The problems that Thomas Cook had stewing were far more systemic.
A Valuable Brand That Survived 2 Wars
Thomas Cook is one of the very few Victorian brands that still resonate today. It had survived world wars, recessions, takeovers, re-organizations and even Robert Maxwell as a major shareholder. It was just the wrong business model for today and was so entrenched in its legacy system and mindset that change was daunting. But, as The Telegraph explains, there were options. Service businesses can be successful by combining different services and products in unique ways. Apple bundled a phone with a camera and a music store. Amazon bundled a vast array of services with Prime.
The brand is valuable and the company owns a mass of assets. While it is wrapping up, it will be talking to buyers and investors and maybe someone will come up with the ideas that can see it reemerge. As noted in The Guardian, there may be “new lenders, as yet unnamed. Asset sales are also on the table, such as the sale of its Nordic business to private equity group Triton, which made a bid earlier this year. A taxpayer-funded bailout appears to have little chance of happening. Otherwise, Thomas Cook is fated to join the likes of BHS and Woolworths – household names that disappeared into oblivion.”
Immediate impact on travellers and jobs. 600,000 travellers scattered throughout various destinations wonder how they will get home. The British Government has deployed 50 aircraft and is airlifting about 150,000 travelers back to the UK. 22,000 people worldwide are no longer employed with the company. Replacements now need to be found for the many aircraft that will no longer fly for Thomas Cook. The Caribbean, for example, will have to replace over 400,000 travellers from the UK and Europe for the coming winter holiday season. Over 100 aircraft leased or owned (34 owned) by Thomas Cook are up for grabs.
On the upside, other airlines are expecting to pick up the business and already their stocks have jumped. TUI, Cook’s main rival, rose by 8% in anticipation of increased sales and EasyJet’s jumped by 4%, Similarly, other airlines have danced about and may do more dancing as the dust settles. Source Fortune.com.
For German travellers, Condor Airlines, the German division of TC, is expecting to continue operation with government funding for 6 more months. That will restore 200,000 airline seats to the Caribbean but there is no guarantee how much of that inventory will be sold.
Thomas cook will be missed by the thousands of hotel that have filled their beds over the many tears of operation. Hotels in Spain, Turkey and Tunisia which relied heavily on Thoma Cook are now scrambling to find alternative distribution and many may close.
Tourism Destinations Scramble
Destinations all over the world are busy trying to fill the gap left by the Thomas Fleet and its stream of traffic, especially coming into the winter travel season for Caribbean islands. Barbados was one of the first to meet with Thomas Cook’s stakeholders in the UK. Plans are in motion to find alternatives for the 24,000 seats now lost for winter holiday travel. The race is on to find other flight partners to pick up the slack. As always, that is a juggling act that will take some time to work out. The main carriers to the Caribbean – BA, Virgin, Condor and TUI – have a limited inventory of available aircraft.
The Caribbean Island of Barbados is planning to offer a $100US bonus to all travellers that became stranded anywhere to come to Barbados for “any future vacation”. Minister of Tourism, Kerrie Symmonds, says “the dates will be announced later.” He adds that Barbados is happy “to host any displaced customer who is still seeking an excellent vacation experience.” See more about Barbados Vacations at Barbados.org
Europe & Africa – The Guardian has complied statics of travellers stranded in several holiday destinations in Europe and Africa – See TheGardian.com.
Actionable Lessons From Thomas Cook’s Failure
For hoteliers, hospitality and tourism professionals, there are several lessons to be learned from the failure of Thomas Cook. Some of the reasons for failure are out of our control but many are not.
- Management owes it to its shareholder and employees to understand the Internet. Digital Media is dynamic and old principles do not apply.
Learn more by reading the latest books on Digital Media for Tourism. Take online courses, listen to podcasts and subscribe to newsletters that follow trends.
- Don’t underestimate the task of going digital. The technology is not trivial and it continues to evolve.
- Beware of legacy systems. Sometimes it’s best to buy rather that integrate. It’s easy to underestimate the cost of integration.
- Don’t let mindset stop innovation.
- TC was massively in debt. Spend wisely and understand the complexity of what you are building or investing in.
- Always Innovate. The successful companies find a better way.
- Diversify your distribution and never put all your eggs in one basket. Be strategic with your channel choice and make sure you build your direct business.
Prepare for Disruption
This is just the tip of the iceberg. Disruption is coming to a portal near you! Tourism is at a pivotal point and is suffering from too much success and over-tourism. Site are closing and tourist are not always welcome everywhere. Add to that technology is in for massive change.
OTAs have become complacent, there is little innovation in the establishment. Travellers search for solutions with outdated options. In the meantime Apple, Amazon, Google and Facebook all top innovators and eye their entries. Airlines, hotels, destination and OTAs need be wary of change and ready to do better. There will need to be collaboration across the channels to deliver more for less. New travel search and booking models must be explored. Matching travels with amenities is passe in an age where experiences matter most.
Keep watching – we will soon add more!
Happening now: Airlines will add new distributed bookings. Hotels, Tourism Operators and Agents may soon have integrated tools that allow travellers to add air transport to their bookings. This is the implementation of IATA’s New Distribution Capability (NDC). Depending on how it rolls out, it could transform the user experience and has the potential to disrupt the status quo.
UPDATE OCTOBER 2020 TC to Reboot
Learn About Digital Media
The book series is for hotel and tourism professionals who are not technology experts. You will find them an easy read. They simplify complex jargon in conversational-style illustrations.