Holiday giant out of danger zone
What’s happened to Thomas Cook?
News broke today of Thomas Cook and their financial troubles. It is a massive group with £9bn in annual sales, 19 million customers a year and 22,000 staff operating in 16 countries.
However, today the BBC reported Thomas Cook in £750m rescue deal talks. It is in talks with Fosun the largest shareholder in the company. Although not yet finalised it looks likely that the Chinese investor will buy the tour business.
Thomas Cook’s chief executive, Peter Fankhauser, said the proposal was “not the outcome any of us wanted” but was “pragmatic”.
Recent financial history
Thomas Cook undertook a strategic review in February 2019 and in March, it announced plans to close 21 of its high-street holiday stores, costing more than 300 jobs, and in May, it revealed a £1.5bn half-year loss.
In December last year shares dropped 60% in value over a period of just 8 days. This was due to concerns over the company’s borrowings (it issued a second profit warning in two months). The travel company’s bonds also dropped in value and the cost of insuring its debt against defaulting on payments reached a record high.
In June this year shares rose 24% when it said it was in talks with Fosum to sell its tour operator business. Today shares opened up with a drop of 40% on news of the proposal.
So what happened to Thomas Cook?
1) In 2010 Thomas Cook linked up with the Co-operative Travel chain. This provided Thomas Cook with about 1,400 shops but at a time when consumers were beginning to book more and more on line.
2) It has had to face a number of reputation issues. These have included the death of two children. Mother of children killed on holiday says Thomas Cook ‘abhorrent’ after an inquest jury reached a verdict of unlawful killing and ruled that Thomas Cook had breached its duty of care. There were deaths at a hotel in Egypt. Egypt hotel deaths: authorities blame E coli, Thomas Cook ‘notes’ announcement In all the cases Thomas Cook were criticised for their handling of the issues both during and after the events.
3) Brexit. Clearly, as with any other industry, Brexit has affected business. In the holiday industry uncertainty has led to a lack of confidence in booking holidays.
4) Good weather last year with a long heatwave was good news for tourism in the UK but not for travel companies as people chose to holiday at home rather than going abroad.
5) Although people like the security and convenience of a package holiday, an increasing number of people are booking accommodation and flights separately. And since July 2018 protections for these consumers improved with the Package Travel and Linked Travel Arrangements 2018
6) The charges for seating and keeping families together are high and add to the cost of holidays. Although not alone in making these charges, Thomas Cook is relatively high. In August 2017 I undertook a comparison of holiday companies and analysis of these costs which showed that Thomas Cook were the highest. These prices have now risen even more. Consumers don’t like feeling conned and are becoming aware of these additional costs and factoring them in before booking. Greed in the wrong places doesn’t work.
7) Uncertainty about the group leaves consumers unnerved. Whilst holiday makers holidays are protected and there should be no problem, news around financial problems unsettles consumers and they will naturally be cautious of booking with Thomas Cook.
8) When I asked on social media what people thought the reasons for Thomas Cook’s troubles were, they answered with the market not being there as point 5 above. But that affects all holiday companies and people said that pre-flight service was poor. With so much competition around companies whatever the sector, the need to improve customer service is paramount. It is becoming more and more important to stand out and one way is by providing the best customer service. We saw it playing a part in Debenhams decline.
Lessons to learn from Thomas Cook difficulties
1) Reputational damage doesn’t go away. People usually have short memories but when you have issues as every company does, how you handle it matters immensely. When KFC had a chicken shortage it dealt with poor publicity and turned it round. KFC chicken shortage and Twitter getting it right. Whilst the deaths were far more serious, the handling of the cases such as not apologising, not looking after the family and just not doing the right thing and certainly not seen to be doing the right thing left its mark. Companies need to do the right thing and be seen to be doing the right thing or pay the price.
2) Keep ahead of the game. Being innovative and creative is essential to survive and thrive in this current climate.
3) Charging consumers more, with added costs not advertised in the original package such as the seat allocation, (unless you want to risk the random allocation) is a growing annoying trend that really frustrates consumers. Honesty and transparency will win more loyalty and return customers than the get rich quick from adding costs here and there. It doesn’t work.
4) Customer service. With the ongoing increase of online shopping there is only one thing left to make you stand out from the crowd whether in store on online after price: Customer service.
5) Poor financial performance has a knock-on effect and shakes consumer confidence in a company and its brands. Who is going to risk their hard-earned annual holiday with a company that looks like it might go under? That’s the main reason why Fosun’s bail out is such good news for Thomas Cook customers and prospective customers
Ensuring that consumers can always contact you quickly and efficiently in the way they want to contact you, not the way you want to contact them. Offering help where appropriate and keeping customers informed are all key customer service issues for consumers.
The analysts will be keeping a close eye on Thomas Cook. From what consumers tell me they have a lot more to work to do than just getting a financial injection. It won’t be just analysts watching Thomas Cook, consumers will be too.
If you are a business wanting to improve customer service, complaint handling and sales, find out more here.