Creative destruction: Thomas Cook Group

Why did the historic travel company collapse?

FacebooktwitterlinkedinmailFacebooktwitterlinkedinmail   by Tertius Bonnin, 25th September 2019

With Thomas Cook Group now entering forced liquidation, the knock-on impact of its collapse has been reverberating through the markets. The mainstream press have also had a chance to print sensational headlines, with some pointing out that we are now witnessing the largest peacetime repatriation of UK citizens in British history. Indeed around 600,000 people globally, of which some 150,000 are thought to be Brits, have been stranded by the collapse of the 175 year old company. So what should we make of this – is it a damning reflection of declining consumer confidence, or are there bigger forces at play?

Though the company itself can trace its roots back to the reign of Queen Victoria, a long operating history is not a guaranteed way to success in a rapidly modernising world. Rightly, some commentators have pointed out that in recent years Thomas Cook has failed to adapt to changes in consumption habits such as widespread internet adoption. The importance of this transformation was illustrated by a recent YouGov poll (March 2019) which found that just 6% of people surveyed booked holidays in-store via a travel agent, while 63% used PCs, laptops, smart phones or tablet devices.

Therein lies a major part of Thomas Cook’s problem. Astonishingly even in its last annual report, the company’s management mentioned that it operated over 500 physical stores which it hoped would “attract, inspire and engage our customers on the high street.” But with just 6% of its addressable market booking in-store, consumers not unreasonably planning a holiday from the comfort of their own home have flocked to more tech-savvy competitors who have gone on to eat up market share. Thus despite Thomas Cook reporting online annual sales growth of 30% in 2018, the existence of over one hundred loss-making stores as recently as 2017/2018 created a significant challenge in a highly competitive market.

So when we ask whether the company’s collapse is a reflection of weakening consumers or whether there are greater forces at work, we can safely point to the latter. Technological innovation has and will continue to impact every part of our lives.

We can point to a number of significant underlying companies in our portfolios that are redefining how consumers approach booking holidays. Airbnb and Ctrip.com (both held within the Scottish Mortgage Investment Trust) have revolutionised their respective industries; Airbnb for example has becoming the online marketplace for accommodation, while Chinese travel agent Ctrip.com – a global competitor to the likes of Expedia in its own right – is also the parent company of the leading global travel search site Skyscanner.

Another example is Amadeus IT Group, one of Europe’s leading technology companies and a core holding in a number of our funds (Fundsmith Equity, Rathbone Global Opportunities and Jupiter European). Amadeus creates a platform which digitises activities for the tourism industry, with customers ranging from airlines and car rental companies, to travel agents and tour operators. If you’ve ever flown before, Amadeus technology is most likely powering at least one aspect of your travel whether it’s your online check-in and mobile boarding pass, or the baggage reclaim at your destination.

All of these innovations mentioned help improve efficiency, transparency and convenience to create a better customer experience when booking holidays or trips abroad. It is a classic example of traditional methods being disrupted by technological solutions which we are seeing across multiple industries. Thomas Cook is unfortunately the latest company which has failed to adapt to the times.

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About the author: Tertius Bonnin

Tertius joined EQ in 2016 and is responsible for covering investment ideas within US, Global and Thematic equities. He sits on the fund selection committee and also supports the portfolio managers across a range of other responsibilities.

He passed Level I of the CFA exam in 2018, holds the Investment Management Certificate and has a BA in Business with Finance. He enjoys a variety of sports including skiing, cycling and running – and when not in the office he experiments with Asian cuisine.

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