LONDON - Thomas Cook's dramatic collapse follows years of mismanagement at the tour operator and a failure to keep pace with online rivals. Brexit didn't help either.
Analysts say it was one of several factors that led to the 178-year old travel company's demise, which has left 150,000 UK holidaymakers stranded abroad and cost thousands of employees their jobs.
Thomas Cook said Monday that it had been forced into liquidation after failing to reach an agreement with banks and its major shareholder, China's Fosun Tourism, on a £1.1 billion ($1.4 billion) rescue plan. Before being suspended, the company's shares were down 90% this year.
Brexit hits travel spend
Richard Branson, founder of the Virgin Group, said in a blog post that the steep drop in the value of the pound following the 2016 Brexit referendum had piled the pressure on the heavily indebted and "struggling" Thomas Cook.
"All of the travel industry costs are in dollars — for example fuel maintenance and airplane leasing. With the weaker pound, the cost of everything has skyrocketed. For Thomas Cook, this has proved terminal," Branson said, adding that he was "saddened" to see the end of "the pioneer of organized travel."
The roughly 20% fall in the pound's value also meant less spending power for UK travelers abroad. That led them to demand better deals, independent aviation analyst Chris Tarry told CNN Business. This hurt margins at Thomas Cook, which sold flights on its own airline, along with hotel rooms, from brick-and-mortar stores.
"Brexit squeezed demand and made what Thomas Cook were trying to upsell on — that is, the heritage and service — less relevant to consumers. With a less ideal cost base, they couldn't compete simply on price with new entrants," said Richard Clarke, an analyst at Bernstein.
Thomas Cook said in its annual Holiday Report in 2019 that fluctuations in the value of the pound had reduced demand for travel to countries that use the euro. All the while, it has been fighting competition from online booking agencies and discount carriers.
One more problem: Continued uncertainty over Brexit had scared away some potential customers.
"There is now little doubt that the Brexit process has led many UK customers to delay their holiday plans for this summer," Thomas Cook chief executive Peter Fankhauser said in an earnings statement in May.
Too much debt and a failure to adapt
Thomas Cook's issues went beyond Brexit, Tarry said. "Management needs to manage and can't keep blaming external factors. Brexit is a convenient excuse. The issues around Thomas Cook have been evident for the last decade."
The company had been slow to respond to changes in the market, he said.
It still has more than 500 retail stores on UK main streets, according to financial statements, which makes it difficult to compete with new online rivals that have much lower costs.
Thomas Cook's biggest problem was that it had too much debt and ran out of cash, said Berenberg analyst Stuart Gordon.
The company's debt jumped 40% to £1.2 billion ($1.5 billion) over the half year to March 2019 compared with the same period the previous year, as lower bookings and high fixed costs meant it spent more money than it made.
It posted a loss before tax of £1.5 billion ($1.9 billion) for the period, after writing down the value of its 2007 merger with MyTravel due to what it said was the "weak trading environment."
Thomas Cook's precarious position was a result of "poor cost control," said Kathryn Leonard of Numis Securities. "Had it just been the market backdrop we might have been in a different position this year," she said.
The six-month period had been characterized by an "uncertain consumer environment" across all its markets, Fankhauser said in May.
Meanwhile, an increase in last-minute holiday bookings had led to greater discounting, which made it difficult to cover operating and financing costs, said Leonard.
Shares in rival tour companies TUI and On the Beach rallied on Monday, as investors anticipate that competitors will benefit from Thomas Cook's closure. In its 2018 annual report, Thomas Cook said it had 22 million customers.
Its collapse may also lead to increased airfares, which would help airlines, said Berenberg's Gordon. Shares in low-cost carriers EasyJet and Ryanair also got a lift.