The collapse in the Thomas Cook (LON:TCG) share price in the last few months was increasingly emblematic of the problems facing the sector over the past few years. In May the share price was already down 80% after two profit warnings, amidst concerns that the business might have to raise more money from shareholders. This turned out to be remarkably prescient given events since July, and today’s collapse into administration.
Don’t just book it Thomas Cook it, was a slogan that was familiar to a lot of people who grew up in the 1980’s and was a symbol of the package holiday boom that really took off between 1985 and the 1990’s. The company attempted to revive the slogan at the end of 2008, but since then the company has struggled to adapt to a changing travel and retail environment, and today’s collapse appears to be the inevitable outcome of decisions that were made back in 2007 as well as an inability to adapt fast enough to changing retail tastes of the last few years.
The growing popularity of the pick and mix type of travel that allows consumers to book their holiday packages separately as well as new kids on the block like AirBnB, has seen the travel industry change beyond all recognition in the past decade, as consumers book travel, accommodation, and car hire independently.
It’s not just been Thomas Cook that has fallen victim to overcapacity in the sector, with the collapse of a host of airlines in the past few years, with the most profile casualty being Monarch a couple of years ago.
Today’s decision to cease trading almost became inevitable after the initial bailout package that was agreed in July of £750m suddenly grew to £950m, raising the possibility that the competitive nature of the sector might mean that the company may well need even more money further down the line.
With the level of debt already at £1.6bn the request by bankers for another £200m on top of the £950m was the final straw for a company that has been in the last chance saloon for several months now.
This has been reflected in the performance of the share price in the last year which has collapsed sharply, with today’s collapse likely to see ripple out effects across the wider industry, as investors focus on where the next weak links may well lie.
We’ve seen over the last few months how other budget airlines, as well as other travel operators in the sector have struggled to complete their forward bookings, which means company’s like Tui (LON:TUIT), EasyJet (LON:EZJ) and Ryanair (LON:RYA) could come under pressure in early trading.
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