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How Thomas Cook flew into the perfect storm

Enrique Dans
Sep 30, 2019 · 2 min read

The historic British travel group Thomas Cook, founded in 1841 and nationalized years after World War II, in 1948 until 1972, to protect what was considered an important part of the country’s social fabric, collapsed last week. The immediate cancellation of all its operations left more than 160,000 travelers stranded worldwide, forcing the British authorities to launch the largest peacetime repatriation ever. Thomas Cook’s demise provides a stark warning to companies that fail to adapt to the changes wrought by technology.

How does a travel company go out of business at a time when more and more people are taking overseas trips? In 2007, as more and more people abandoned traditional travel agents and instead used the internet to book vacations, Thomas Cook tried first to adapt by buying MyTravel. That went badly wrong, losing the company more than $1 billion and burdening it with unsustainable debt, which together with unsuccessful attempts to sell assets such as its airlines and the costs of maintaining a network of 560 high street travel agencies throughout the United Kingdom, left the company highly vulnerable. Chinese investment group Fosun, which owns the French Club Med resorts chain and the Canadian Cirque du Soleil theater company, tried to incorporate it into its portfolio with a two-year investment, but finally decided to cut its losses and left the company stranded.

This is a case where context is all: the British travel market is stronger than ever. It is estimated that around 60% of the population to overseas vacations in 2018, up on the 57% that did so the previous year. However, habits have changed: in addition to the growing popularity of city breaks over traditional beach destinations the company had specialized in, the way people book their trips abroad has dramatically altered: it is estimated that only one in seven clients still visit a travel agency to book their vacations, and those who do, in general, are aged over 65 and with less money to spend.

A failure to adapt to a changing technological environment relegated Thomas Cook to the least profitable segment of customers and through a channel that generated comparatively high costs, incurring mounting and unsustainable debts. At the same time, climate change played a role: higher temperatures over the last two summers in the United Kingdom meant that people on lower incomes opted to stay at home. Add to that uncertainty about Brexit, and it was clear that Thomas Cook was going nowhere.

Changes in how we as consumers use technology, poor management, financial problems and on top of that, climate change: the perfect storm. Thomas Cook is now history, a fading vacation snapshot of our habits in the last century, when its problems began. As said, context is everything.

This article was previously published on Forbes.

(En español, aquí)

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