Thomas Cook's turbulent week

07 December 2011


Share price rebounds
The travel industry as a whole would have suffered massively if Thomas Cook had not been granted its loan facility by the banks last week. I had been watching the price of Thomas Cook shares closely and am very pleased that they rose sharply by 34% on Monday morning after HSBC, Barclays and Unicredit agreed to provide a £200 million facility until 30 April 2013 according to the Director of Finance website. Interestingly the group is also going to be undertaking a strategic review.
 
You saw the impact of the uncertainty last week on the Facebook pages of many other travel operators as customers question whether they will still have a Christmas holiday and whether they should delay booking anything until the situation calms down. The parallels with the euro zone crisis are striking.
 
We all need to show confidence
The industry now needs to rally round to show confidence in the brand and continue to trade as normal and lobby the banks and government to support the company. Customers need to be reassured by all travel operators and TUI is already promoting its “You’re in safe hands” campaign as reported by Travel Weekly. Social media channels need to be places where customers can have frank and open discussions about the situation and where information can be freely exchanged about their rights and extra resources dedicated to restoring confidence.
 
Learning from Marriott
If you look at how Marriott handled the Bombay terrorist situation there is much that Thomas Cook can learn from how their CEO was constantly on Twitter to reassure customers and answer questions. It’s clear that neither TUI nor Thomas Cook had their social media activity sorted when questioned at the ITT conference in June 2011. However let’s not forget that they’ve also been subjected to several “force majeure” events such as the Arab Spring, a tsunami, two ash clouds and the euro crisis over which they have had no control.
 
The coverage last week was somewhat mixed and fierce debates raged on Travel Weekly and TTG Digital as to the wisdom of their strategy to date.  What’s clear is that a potential strike by their flight crew would have been disastrous for the company. However only 50% of union members had bothered to vote according to cabincrew.com so I sense that a desire to strike is somewhat luke warm and the union should know better than to push for such action in our current market.
 
The company decided to use video to try to allay fears last week as its deputy chief executive Sam Weihagen explained the rationale for the decision to seek more funding which is a good sign.
 
Source: BBC Sam Weihagen
 
Questions in the house
The situation was serious when it caused questions to be asked in the House of Commons as reported by TTG Digital. Cameron realised that if the company were to fail ABTA would clearly struggle to bail out the company and would need to rely on its government guarantee. If there is one single reason to restore confidence in the stock it is to spare the poor UK taxpayer. Thomas Cook has about 22 million customers across 21 countries with about 1,200 outlets in the UK (after its recent merger with the Coop), as reported by BBC .
 
Coping with disruptive forces
As a Thomas Cook ex employee I have to say that the company delivered some of the happiest and best memories of my career. It is one of the most iconic brands in the industry and it’s a shame that ironically it started out so promisingly in 1995 with one of the first travel websites but was reluctant to invest heavily in the internet as it did not want to cannibalise its own retail network. I remember having heated exchanges with colleagues back in 1995 about how important the internet would be. The culture of the business back in the mid 90s reminded me of that I found whilst also working with M&S several years later which was a complete blind spot about how the market was going to change. Companies with dominant market share often forget about spotting the first signs of the disruptive forces which change the structure of their markets. The M&S case study is a good one to learn from.
 
Pros and cons of the situation
Once Thomas Cook’s financial services division was sold off to Travelex the true scale of Thomas Cook’s low margin travel business was laid bare. Whilst there is a high degree of trust in this famous brand and a real pride amongst the employees who work for it, it needs to adapt to the market changes.  
 
Thomas Cook does have a huge amount of debt (almost an eye watering £1billion) –   but it is also the second largest operator in the market and my view is that the goodwill in the brand is very strong. We should not forget the value of its intangibles on the balance sheet. Whilst several players in the financial markets are recommending that investors sell we should not forget that they make money based on the volatility of the markets, so any swings in the market will line their pockets.
 
Thomas Cook is reviewing its current strategy and has to accept that people have changed how they buy travel. The trend started in the early 90s and whilst packaged travel used to be more than 50% of the market the tables have now turned and it will become a series of niche markets in due course. Anyone listening to the Phocuswright session at WTM this year can clearly see the European trends to more self booking, driven by the growth of the online travel agents (OTAs), smartphones, review sites and social networks.
 
Your reputation destroyed in a tweet
Now more than ever when a company’s reputation can be destroyed in a tweet, companies need to use social channels to have the frank and open conversations. It is not Thomas Cook that is at stake, it is the health of the whole travel industry. If you read what the financial analysts say they are recommending that investors avoid the industry so let’s start to take some real action and start lobbying government to reassure the markets that confidence is high.
 
Join our poll
Let’s have our own poll to stop the market from trashing our most famous of travel brands. Sometimes it’s a lack of confidence that can destroy a brand. So let’s restore that now - all those in favour say “Aye” below and please vote on the poll on the WTM Facebook page. Thomas Cook has been very generous to its fellow industry partners and colleagues so let’s show them some support and save our industry in the process. Remember action now will affect your ability to get funding for any future travel industry activity. Let’s hope those striking airport workers, (yet another force majeure to hit the travel industry) will not dent that confidence further. The strike really is the last thing the industry needs right now.
 
What next?
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