Thomas Cook Collapses

[RichmondCommu]

We had great service from TC when booking cruises 10 or so years ago. I'd go in with my phone and show them the best price I could get on various cabins.

The cruise companies would release different cabins to different outlets. On more than one occasion TC had access to book guaranteed cabin (choose the grade, not the location) which wasn't an option available on line. They were far cheaper than any offer I could find.

The problem is that was 10 years ago. 10 years ago Thomas Cook were doing okay.

 

[WestCoast]

With hindsight, Thomas Cook also over-invested in Turkey, Egypt and North Africa in the 2000 - 2010 period, meaning when it went sour in those places they had to shift capacity back to Spain etc. They reduced capacity to places like the Costa del Sol and Benidorm just as Jet2Holidays were expanding there on a huge scale, so when they came back in a lot of people were no longer loyal. I can remember people saying it was smart move and that Spain was going to keep declining in popularity, but of course this has turned out to be quite the opposite due the situation especially in Egypt/Tunisia. I'm almost certain that for a while Thomas Cook cancelled all their own flights to Malaga (for Costa del Sol) but Jet2 steadily launched up to 20 a day or something like that.

 

[Andyh82]

Am I right in thinking that the airline business was actually doing ok, it was the travel agent part that dragged them down?

I wonder who the main beneficiary will be on the airline side, as surely the capacity will still be needed.

 

[Peter Mugridge]

But it looks like they have been in trouble for quite a while.

Indeed they have; the Companycheck report on them makes for frightening reading; their net worth has been negative for the past few years to the tune of nearly £3 billion! See link below.

https://companycheck.co.uk/company/06091951/THOMAS-COOK-GROUP-PLC/financials

Am I right in thinking that the airline business was actually doing ok

You are quite right - the airline part of the business was very healthy; turning again to Companycheck - see link below - the net worth is a very good nearly half a billion pounds.

https://companycheck.co.uk/company/02012379/THOMAS-COOK-AIRLINES-LIMITED/financials#key-financials


There are several other separately accounted units in the business which can also be found on Companycheck, and it is quite interesting seeing which bits were doing well and which were not. The overall impression I get from looking through them all is that yes, it was the excessive debt from poorly directed acquisitions and expansion which sank them.

 

[158756]

With hindsight, Thomas Cook also over-invested in Turkey, Egypt and North Africa in the 2000 - 2010 period, meaning when it went sour in those places they had to shift capacity back to Spain etc. They reduced capacity to places like the Costa del Sol and Benidorm just as Jet2Holidays were expanding there on a huge scale, so when they came back in a lot of people were no longer loyal. I can remember people saying it was smart move and that Spain was going to keep declining in popularity, but of course this has turned out to be quite the opposite due the situation especially in Egypt/Tunisia. I'm almost certain that for a while Thomas Cook cancelled all their own flights to Malaga (for Costa del Sol) but Jet2 steadily launched up to 20 a day or something like that.

I was wondering about that. There's a chart somewhere showing their losses really mounting up around 2011-12, which was when it all kicked off in North Africa. They already needed refinancing in 2011 though, so there were obviously pre-existing problems.

On the Spanish front, they still didn't operate any flights to Malaga, by a quick count I think they were supposed to operate 32 flights from Manchester, their biggest base, to Spain this week, versus 89 for Jet2.

 

[Jozhua]

Interesting thoughts on this thread!

I'll add my two cents as to the reasons I think they went down and thoughts on the governments decision not to bail them out:

• General long term trends like Brexit and weaker pound have made foreign travel more expensive for the last couple years. Thomas Cook mostly serves people leaving the UK, rather than coming so this will definitely effect them more than say Ryanair.
• Overcapacity in European aviation market, which is already one of the most difficult industries to operate in.
• Online services have made it super easy to book your own customised holiday and easy acess to internet/mobile abroad make it easy to find your own way around! Businesses like Airbnb make it easier to book small rental homes, which are often a lot cheaper due to less staff and the high taxes usually imposed on hotels.
• Different types of holidays. I definitely think there's been a big switch in the types of holidays people want to go on. Simple beach + party packages are less popular and due to social media and general cultural shifts, I think people prefer to say do a more sightseeing type trip with multiple destinations. Big, closed off resorts in very touristy areas such as the ones Thomas Cook would likely have invested in are less suitable for this.
• Cost of running large number of high street stores.

I think the no bailout decision is probably, like another user said, somewhat a result of a more Conservative government mentality 'if they go down, they go down'. I guess as well someone probably crunched the numbers and came to the conclusion they didn't think it would keep the business afloat for much longer and a large repatriation operation would be necessary in the future anyway. Probably not great it's happened as the main travel season tails off, but at least it's not in the middle of the summer holidays!

Saw some reports of people calling Ryanair and Easyjet's sudden price hikes 'blatant profiteering', but I think the prices are constantly recalculated automatically based on many different factors of which demand/availability is a big part. In regards to people looking to book new flights from the UK in order to continue their trips, I don't think there is anything perticularly shameful about them charging more. However I can feel sorry for those currently abroad, looking to get home who have packages or flights. I wouldn't be surprised if the prices for these though are negotiated with the CAA or insurance companies. I flew with Thomas Cook from Manchester to New York earlier this year, outside of a package as I was staying with relatives.

 

[cactustwirly]

Am I right in thinking that the airline business was actually doing ok, it was the travel agent part that dragged them down?

I wonder who the main beneficiary will be on the airline side, as surely the capacity will still be needed.

On paper it looked like it was ok, but it relied heavily on bookings from th tour operator side.
I doubt it would have survived on its own

 

[Bletchleyite]

Saw some reports of people calling Ryanair and Easyjet's sudden price hikes 'blatant profiteering', but I think the prices are constantly recalculated automatically based on many different factors of which demand/availability is a big part.

Indeed. This is the same as Uber "surge pricing" which seems to attract ire from people who seem to believe they do it manually. They may not even have an effective way of doing it manually other than offering rescue fares for those stuck somewhere, which the airlines usually do via their call centre, but which are unnecessary in this case as the ATOL organised repatriation is, I understand, also going to repatriate those with flight-only bookings.

It's disappointing that those who haven't travelled yet have lost their week in the sun, but that's life, they will get a refund due to ATOL protection. In the meantime perhaps they just need to be pragmatic and have a "staycation" or drive to Wales for a week's camping or whatever.

 

[yorksrob]

Interesting thoughts on this thread!

I'll add my two cents as to the reasons I think they went down and thoughts on the governments decision not to bail them out:

• General long term trends like Brexit and weaker pound have made foreign travel more expensive for the last couple years. Thomas Cook mostly serves people leaving the UK, rather than coming so this will definitely effect them more than say Ryanair.
• Overcapacity in European aviation market, which is already one of the most difficult industries to operate in.
• Online services have made it super easy to book your own customised holiday and easy acess to internet/mobile abroad make it easy to find your own way around! Businesses like Airbnb make it easier to book small rental homes, which are often a lot cheaper due to less staff and the high taxes usually imposed on hotels.
• Different types of holidays. I definitely think there's been a big switch in the types of holidays people want to go on. Simple beach + party packages are less popular and due to social media and general cultural shifts, I think people prefer to say do a more sightseeing type trip with multiple destinations. Big, closed off resorts in very touristy areas such as the ones Thomas Cook would likely have invested in are less suitable for this.
• Cost of running large number of high street stores.

I think the no bailout decision is probably, like another user said, somewhat a result of a more Conservative government mentality 'if they go down, they go down'. I guess as well someone probably crunched the numbers and came to the conclusion they didn't think it would keep the business afloat for much longer and a large repatriation operation would be necessary in the future anyway. Probably not great it's happened as the main travel season tails off, but at least it's not in the middle of the summer holidays!

Saw some reports of people calling Ryanair and Easyjet's sudden price hikes 'blatant profiteering', but I think the prices are constantly recalculated automatically based on many different factors of which demand/availability is a big part. In regards to people looking to book new flights from the UK in order to continue their trips, I don't think there is anything perticularly shameful about them charging more. However I can feel sorry for those currently abroad, looking to get home who have packages or flights. I wouldn't be surprised if the prices for these though are negotiated with the CAA or insurance companies. I flew with Thomas Cook from Manchester to New York earlier this year, outside of a package as I was staying with relatives.

I have a particular dislike of extremely aggressive yield management techniques. Whether there's a person doing it with an evil laugh, or a computer programme, you're still being fleeced.

 

[Tetchytyke]

This is the same as Uber "surge pricing" which seems to attract ire from people who seem to believe they do it manually. They may not even have an effective way of doing it manually

I'm not buying the "it's not our fault, it's the computer programme" line. Who specified, ordered, and designed the computer algorithm?

I'm not saying I blame airlines for cashing in- that's the free market, and it happens with big sporting events too- but it's disingenuous to say they can't control it.

 

[Meerkat]

I assume those who complain about yield management “fleecing” don’t take advantage of off peak fares or cheap tickets when the airlines are desperate to fill seats.
Neither do they demand a pay rise when they know their employer is struggling to fill jobs

 

[yorksrob]

I assume those who complain about yield management “fleecing” don’t take advantage of off peak fares or cheap tickets when the airlines are desperate to fill seats.
Neither do they demand a pay rise when they know their employer is struggling to fill jobs

For me, sensible yield management should be fairly predictable. Both company and customer can make an educated prediction what times of the day and week, capacity will be stretched and what times it won't. Quotas should be based on this, not a computer programme designed to fleece customers of whatever the company can get away with.

And yes, I dislike and avoid air travel generally, particularly the type of fly-by-night cowboys who can barely be trusted not to charge you to use the loo.

 

[cactustwirly]

For me, sensible yield management should be fairly predictable. Both company and customer can make an educated prediction what times of the day and week, capacity will be stretched and what times it won't. Quotas should be based on this, not a computer programme designed to fleece customers of whatever the company can get away with.

And yes, I dislike and avoid air travel generally, particularly the type of fly-by-night cowboys who can barely be trusted not to charge you to use the loo.

Yield management is used everywhere, the prices of my employers accommodation, changes every week as demand changes.

 

[aar0]

Whilst this is all desperately sad I do wonder why people continued to book holidays with Thomas Cook when it was widely known that it was in serious trouble.

Not booking would surely push them to bankruptcy quicker - I don't regret booking late last month, but I am sad they're gone. Glad that for the first time ever I booked a package though

 

[RichmondCommu]

Not booking would surely push them to bankruptcy quicker - I don't regret booking late last month, but I am sad they're gone. Glad that for the first time ever I booked a package though

I concur that it would have pushed them closer to bankruptcy but that's not the fault of the consumer!

 

[yorksrob]

Yield management is used everywhere, the prices of my employers accommodation, changes every week as demand changes.

Just because yield management is everywhere, doesn't mean you're not getting fleeced.

 

[Meerkat]

Who is getting fleeced when yield management creates really cheap tickets?

 

[Jozhua]

I have a particular dislike of extremely aggressive yield management techniques. Whether there's a person doing it with an evil laugh, or a computer programme, you're still being fleeced.

Yes, but unfortunately for an airline to survive in this day and age, it is a necessity. I doubt there is a single airline who doesn't sell tickets like this.

If you play the system right it creates opportunities for buying very cheap tickets so there are positives.

If the airline doesn't try and fill as many seats as possible, the flights will almost certainly lose money, especially if it is filled with mostly economy or all economy configurations. The economics of the airline industry is pretty brutal and the recent loss of Air Berlin, Wow Air and now Thomas Cook just goes to show that.

 

[richw]

German subsidiary Condor have today filed for insolvency

 

[Tetchytyke]

German subsidiary Condor have today filed for insolvency

Thomas Cook GmbH have, but Condor continue to trade after a €380m loan from the German government.

If you play the system right it creates opportunities for buying very cheap tickets so there are positives.

I'm not so sure it does. The only truly cheap fares are on balancing moves, which are run as the return flight is profitable (e.g. flights to Ibiza at start/end of season). Flights which never get filled get pulled.

 

[Ianno87]

Just because yield management is everywhere, doesn't mean you're not getting fleeced.

Nobody forces you to pay, or even fly with them, or even travel by plane at all.

For people stuck abroad because of TC's collapse, whilst the upfront cost might be hard to stomach of replacement flights, at least it'll be reimbursable via travel insurance.

The top end of the yield management price range is where the profit lies, not in bargain basement fares.

 

[BayPaul]

I'm not so sure it does. The only truly cheap fares are on balancing moves, which are run as the return flight is profitable (e.g. flights to Ibiza at start/end of season). Flights which never get filled get pulled.

Dynamic pricing is much cleverer than this...

Take a plane with 150 seats.
If the dynamic pricing system expects to sell 100 seats, then it will drop the price, encouraging more people to book. This could be done when the flight first goes on sale (if anticipated demand will never fill it unaided) - This is normally what gives you the £10 giveaway fares for early booking on certain flights. Alternatively, if the system sees that the bookings are not meeting the booking curve (the number of seats sold for that particular flight over time) then it can progressively drop the price to boost bookings - this will tend to lead to last minute deals.
If on the other hand, the dynamic pricing system believes it could sell 200 seats, then it will set the price artificially high, in order to reduce demand on that flight. As the flight gets close to capacity, seat prices will tend to get very high, as there might be just a couple of seats left, likely to get sold to someone with urgent need.

I'm not buying the "it's not our fault, it's the computer programme" line. Who specified, ordered, and designed the computer algorithm?

I'm not saying I blame airlines for cashing in- that's the free market, and it happens with big sporting events too- but it's disingenuous to say they can't control it.

The other side of the coin - if the airline held the seat prices at the same level as before Thomas Cook failed, the seats would all be sold in minutes, and then there would be zero availability for anyone, as there is no way of increasing capacity rapidly enough to compensate. Effectively the limited supply seats are being auctionned - those who have most need to fly will have to pay to get the seat, but have longer to do so. Those who don't absolutely need to fly will be put off with the high prices, and will look for alternatives, such as a holiday in the UK.

 

[FQTV]

Dynamic pricing is much cleverer than this...

Take a plane with 150 seats.
If the dynamic pricing system expects to sell 100 seats, then it will drop the price, encouraging more people to book. This could be done when the flight first goes on sale (if anticipated demand will never fill it unaided) - This is normally what gives you the £10 giveaway fares for early booking on certain flights. Alternatively, if the system sees that the bookings are not meeting the booking curve (the number of seats sold for that particular flight over time) then it can progressively drop the price to boost bookings - this will tend to lead to last minute deals.
If on the other hand, the dynamic pricing system believes it could sell 200 seats, then it will set the price artificially high, in order to reduce demand on that flight. As the flight gets close to capacity, seat prices will tend to get very high, as there might be just a couple of seats left, likely to get sold to someone with urgent need.



The other side of the coin - if the airline held the seat prices at the same level as before Thomas Cook failed, the seats would all be sold in minutes, and then there would be zero availability for anyone, as there is no way of increasing capacity rapidly enough to compensate. Effectively the limited supply seats are being auctionned - those who have most need to fly will have to pay to get the seat, but have longer to do so. Those who don't absolutely need to fly will be put off with the high prices, and will look for alternatives, such as a holiday in the UK.

All correct.

There are some other further nuances, too. As an example of just one, when network airlines are offering repatriation fares, it's not uncommon for their availability in the 'Global Distribution Systems' used to sell flights to be set to only show 'full fares' (F, J, W, Y for example).

This allows the ticketing system to continue to offer tickets for seats on particular flights for sale, but effectively puts off new retail and trade bookings. Meanwhile, the airline will retain 'closed user group' or other protected availability in non-public fare buckets (G for example) which can only be accessed by airline staff or those others with specific authority, usually to book tickets for seats at a flat fare agreed for the purpose of the repatriation/compassion.

This happened widely following the Icelandic ash cloud shutdown, when airlines needed to reopen bookings, but practically-speaking ensure that only those who were still stuck could or would make bookings. I am aware that it has been used as a strategy in recent days too, with predictable outcries again.

The press and social media, being unaware of what's being manually done, tends to howl at 'rocketing fares' in such circumstances.

This nuance doesn't apply to non-network carriers, however, who use their own proprietary sales systems.

 

[richw]

Thomas Cook GmbH have, but Condor continue to trade after a €380m loan from the German government.

Thomas Cook GmbH have, but Condor continue to trade after a €380m loan from the German government.

That was on Monday. Today they filed insolvency. I’m confused as googling the situation articles from 14 hours ago mention the bridging loan then 7 hours ago say they’ve filed insolvency. The bridging loan was originally so they continue flying during insolvency process

 

[158756]

I'm not so sure it does. The only truly cheap fares are on balancing moves, which are run as the return flight is profitable (e.g. flights to Ibiza at start/end of season). Flights which never get filled get pulled.

I suppose it depends what you call cheap, but the low cost airlines always have something affordable if you're not that fussed about where you're going. E.g next week Ryanair have Manchester-Marseille for £10 one way, and have it around £15 all winter. It is unlikely any of those flights will be cancelled even if they aren't making any money.

 

[richw]

In reference to above, condor have filed insolvency due to liabilities from its parent company (TC) however belives it can be saved as it’s profitable. The bridging loan is to support it being saved.

 

[Tetchytyke]

Dynamic pricing is much cleverer than this...

I understand that, but it wasn't my point. It is now rare for flight load factors to be dramatically different to yield management assumptions, because the big airlines have so much data, both on load factors and internet traffic for quotes (even down to thae exact point a passenger abandons a quote). Other than balancing flights, for which any booking is a bonus, the very cheap fares occur when an airline gets their assumptions wrong, which is very rare.

It is unlikely any of those flights will be cancelled even if they aren't making any money.

If the flights lose money and don't otherwise serve a purpose, they will be scrapped. Ryanair have cut a lot of routes recently, supposedly because of the 737MAX fiasco, but it's safe to say that's not the whole story.

 

[cactustwirly]

I understand that, but it wasn't my point. It is now rare for flight load factors to be dramatically different to yield management assumptions, because the big airlines have so much data, both on load factors and internet traffic for quotes (even down to thae exact point a passenger abandons a quote). Other than balancing flights, for which any booking is a bonus, the very cheap fares occur when an airline gets their assumptions wrong, which is very rare.



If the flights lose money and don't otherwise serve a purpose, they will be scrapped. Ryanair have cut a lot of routes recently, supposedly because of the 737MAX fiasco, but it's safe to say that's not the whole story.

But the whole business model of easyJet and Ryanair is to offer cheap fares is it not?
I've flown with easyJet on multiple occasions, and I wouldn't say the fares have been that expensive

 

[Tetchytyke]

But the whole business model of easyJet and Ryanair is to offer cheap fares is it not?

I'm cynical enough to think their business model is to offer expensive fares whilst persuading people they are cheap, hence the "optional" extras they all charge.

In fairness to Easyjet, I've never seen comedy high fares, though I've only ever flown them domestically (usually as an alternative to six hours on a Voyager!)

 

[Spamcan81]

But the whole business model of easyJet and Ryanair is to offer cheap fares is it not?
I've flown with easyJet on multiple occasions, and I wouldn't say the fares have been that expensive

Depends on when you book and/or demand for your chosen destination.