
Why Thomas Cook Collapsed - danso
https://www.citylab.com/life/2019/09/thomas-cook-bankruptcy-travel-industry-cheap-flights-europe/598627/
======
barbegal
I'm not sure the article truly gets to the key points of why they went out of
business. The travel industry in Europe is still growing, Brits are making
more foreign trips than ever before.

The real problem was that the holidays they were selling weren't making Thomas
Cook any profit. The holidays needed to be competitive against online travel
agents with much lower wage costs. By booking with Thomas Cook, you could get
an experience where there were more staff on hand to help you, but actually
people didn't value this and hence weren't prepared to pay more.

The real nail in the coffin for Thomas Cook was their huge liabilities and
huge concerns about their business viability so of course they were paying
huge amounts of interest. Lenders were only lending to them on the hopes that
they could collect enough interest rather than repayment. They were hoping
that other parties (such as governments) would make cash injections such that
they could profit. Everyone knew that eventually the debt would catch up with
them, no one would want to be left holding the bag and the company would
collapse.

The only reason Thomas Cook's balance sheet didn't look horrific was because
they had assigned the brand a goodwill value of over £2.5 billion in 2018
which they wrote down to £1.4 billion after the first half of 2019. This was
clearly a huge over-estimate as I doubt anyone will be paying much to purchase
their brand now!

~~~
treis
>assigned the brand a goodwill value of over £2.5 billion in 2018 which they
wrote down to £1.4 billion after the first half of 2019. This was clearly a
huge over-estimate as I doubt anyone will be paying much to purchase their
brand now!

That's not what Goodwill is. Goodwill goes on the balance sheet when you
acquire a company for more than book value.

~~~
usr1106
I am not familiar with the details of their business.

But I assume they got the goodwill into their balance sheet by typical
mismanagement:

1\. Their markets are shrinking

2\. Instead of shrinking company operations to adapt, they buy even less
successful competitors for an overprice, so goodwill in the balance sheet

3\. Not unsurprisingly integrating the not so successful competitor into the
company is not so successful, employees are demotivated abd business suffers
even more

4\. Now a company with growing costs operating on a shrinking market gets even
less profitable

I don't claim healthily shrinking a company to adapt to a shrinking market is
easy. But I'm sure it must be doable. Looks like business management largely
fails in this discipline.

~~~
treis
>But I assume they got the goodwill into their balance sheet by typical
mismanagement:

Virtually every company will have a market value greater than their book
value. So any company that buys other companies will have goodwill on their
balance sheet. Google, for example, has 18 billion dollars worth from all of
their various acquisitions.

Take a company like Nest for example. They had assets like patents,
infrastructure, cash, accounts receivable, etc. If you add those all up and
subtract their liabilities you get a book value of 100 million, as a totally
made up number. Google comes along and buys them for 3.2 billion dollars. The
transaction, from a book value perspective, has 3.2 billion in cash going out
from Google and 100 million dollars of assets coming back. That looks like
Google paid 3.2 billion for 100 million in assets, or in other words, just
lost 3.1 billion dollars of value. To prevent that goodwill is added to the
equation. The books have Google paying 3.2 billion dollars in cash for 100
million in assets and 3.1 billion in goodwill. Now Google paid 3.2 billion in
cash for 3.2 billion in assets and it doesn't look like they lost value.

------
NeedMoreTea
Well he misses mention of the £3.1bn of debt before its collapse. Nor that
while high street travel agents were busy declining _fast_ Thomas Cook,
fifteen years after we all discovered lastminute dot bomb[1], they bought Co
Op Travel and their 750 shops. They lost their prestige image in the 90s as
they were firmly playing in the discount package space.

Doubling their high street shop network in 2016 seems to be sheer lunacy.

[1] For those who don't remember the reference, their IPO didn't go to plan:
[http://news.bbc.co.uk/1/hi/in_depth/business/2000/review/106...](http://news.bbc.co.uk/1/hi/in_depth/business/2000/review/1069169.stm)

~~~
eecc
wow, that link loaded in an instant. Was the web that fast two decades ago?

~~~
shantly
Yes. Granted more people were on dial-up, but while the _promise_ of an
AJAXier web was one that felt faster, the effect _in practice_ has been one
that feels slower, if anything. There was a brief golden age in which, if one
had broadband, the web was _very_ fast using entirely static or server-
rendered pages, which are considered in modern dev folklore (hilariously, to
those who've seen both at work) to be slow. [EDIT] just the server rendering
is considered slow or old-fashioned or somehow inefficient, I should clarify—I
don't think anyone's nutty enough to think static pages are slow.

Also images were much, much smaller, both in terms of pixels and amount of
compression applied, using large images that weren't content was heavily
discouraged, and no-one used auto playing videos. To the extent that sins
against bandwidth were committed it was mostly with Flash, which we all
complained about and which is now reviled, but which was in fact _generally_
way less abusive, confusing, and performance-destroying, than what gets done
now in the name of "modern UX". Pages were much smaller, devs were much more
sensitive to markup bloat. The worst we had on that front were WYSYWG-made
pages (Frontpage, for example) but they've got nothing on the kind of
attribute bloat and huge JS payloads one sees now (and the JS in particular
can keep on allocating memory after its text is loaded into memory then parsed
into even more memory, with predictable results on resource use and page load
times)

~~~
perl4ever
I remember many years ago, when a 16 MHz 68030 Macintosh was somewhat usable,
but old and slow, by the standards of the day.

I had read how, when the 68000 came out originally, it was considered to be a
"minicomputer on a chip", while the 68030 was anticipated to be a "mainframe
on a chip".

So, I was unable to viscerally appreciate that perspective, until I ran the
original MacPaint, which was extremely optimized for the 8MHz 68000 in the
original Mac, and then I was amazed at how fast the 68030 was.

~~~
NeedMoreTea
Hah, I can mention latency again!

I had the Amiga, 68000 at 7.09 MHz (PAL, NTSC ran a teeny bit faster). Both
Mac and Amiga gave fully featured, incredibly low latency GUIs. They might
think a bit _after_ the click, but compared to a modern GUI, _oh so snappy._

Windows, OSX, X with whatever Windowing never get close to that instant tip of
your fingers response. I miss low latency responses.

~~~
perl4ever
Well, I wouldn't make such a categorical statement about latency. I remember
an early Amiga word processor that had an _unbelievably_ laggy and slow UI,
such that it was basically unusable.

The Mac mouse pointer was always responsive due to interrupts, but that didn't
mean that what you clicked on was.

However, the thing that I hate most about the modern web and similar UIs is
that they reflow or otherwise move the content you are looking at after you
click and before the click is mapped to an element, so you don't get what you
click or tap on. This is absolutely unforgivable in my opinion, and absolutely
not a matter of degree or grey areas unlike most of the things people complain
about.

~~~
NeedMoreTea
Amiga's pointer was a hardware sprite, so that always stayed responsive. Was
more thinking of the OS's themselves rather than within applications. You
could certainly get Amiga to slow down in the apps, particularly if you were
programming it badly. As it generally only redrew when needed and managed
layers and viewports pretty well, getting it that laggy would have taken
effort. :)

Took years after I abandoned the platform for serious use for Windows not to
always be more sluggish, and get dramatically worse when under load. Course by
then I was on '040 comparing with Pentium something.

------
buboard
The article abdicates the responsibility of Thomas cook itself. It's clearly
not solely an issue of external factors (althemoreso those factors were
predictable). TC has financial troubles for a decade now. It known to be in a
dire situation the past few years. And yet it was allowed to sell unrealizable
packages to hundreds of thousands of people. Now their collapse costs a
fortune to the UK taxpayers and probably even more to the thousands of
businesses in the european south that are damaged. It's a little rich to
pretend it was all inevitable

~~~
jayflux
> Now their collapse costs a fortune to the UK taxpayers.

Does it? Grant shapes (secretary of state for transport) said most of the
money to sort this mess has come from the ATOL fund rather than tax. And if
that doesn’t cover it then the money from asset stripping TC will be used to
pay back customers.

So I’d be interested to know you've got that from.

~~~
buboard
That fund is apparently not enough to cover the associated costs

[https://www.thetimes.co.uk/article/taxpayer-faces-huge-
bill-...](https://www.thetimes.co.uk/article/taxpayer-faces-huge-bill-as-
thomas-cook-collapse-expected-to-cost-1bn-vrlcqkkzb)

~~~
gambiting
"This is in addition to an expected £100 million bill to return Thomas Cook
passengers to Britain" \- it might be true, but I just don't understand where
they are getting that number from. When Monarch Airlines collapsed,
repatriating 110k passangers cost £16.3M - but somehow repatriating 150k
tourists is going to cost over £100M here??

~~~
Scoundreller
Reasons why this might be a lot more expensive:

1\. Monarch just flew EU. TC also does Cuba; Mauritius; Barbados, USA, India

2\. Because of the 737MAX mess, there’s fewer available seats on other
airlines and there just aren’t idle charter planes available.

~~~
gambiting
In response to #2: Thomas Cook had its own airline with its own fleet of
aircraft. Surely some of the fund could be used to keep that fleet and its
pilots employed and operational to bring the people back? No need to charter
anything then.

~~~
Scoundreller
That’s incorrect.

All except 5 were leased from 38 different companies:

[https://www.reuters.com/article/us-thomas-cook-grp-
investmen...](https://www.reuters.com/article/us-thomas-cook-grp-investment-
fleet-fact/factbox-fleet-of-over-100-jets-operated-by-troubled-thomas-cook-
idUSKBN1W70SP)

------
mrnobody_67
Clearly they had plenty of customers given that 150K people are stranded.

So the reason they collapsed is because their cost structure wasn't aligned to
serve the volume of business they conducted.

~~~
andyst
Not specifically. The article indicates changing market preferences for
travel, digitisation of agency functions, emergence of low cost carriers and
market disruption in airbnb as the underlying causes.

Although they may have had 150k stranded customers it seems they were left
with a low yielding segment selling products the market didn't need.

------
chrisseaton
> The number of Britons taking a yearly two-week vacation (a travel-agency
> staple, long standard because of the country’s generous vacation days)

Does the UK have a reputation for generous vacation days? I never knew that -
I thought it was pretty standard 28 days here.

~~~
diggan
28 days compared to nothing (CityLab seems to be US based) is infinitive
percent more :)

~~~
oh_sigh
Minimums aren't averages.

~~~
Majromax
Even still, the median US worker is unlikely to earn 4-5 weeks of paid time
off during a year. The lowest quarter of wage-earners are as likely as not to
have no vacation leave entitlement at all
([https://www.bls.gov/news.release/ebs2.t06.htm](https://www.bls.gov/news.release/ebs2.t06.htm))
[56% with paid vacation, 44% without].

The median number of vacation days for most categories of workers is about 15
([https://www.bls.gov/ncs/ebs/benefits/2017/ownership/private/...](https://www.bls.gov/ncs/ebs/benefits/2017/ownership/private/table38a.htm)).

~~~
nostromo
But most of the bottom quarter of earners are part-time workers.

I'm actually surprised that many part time employees are given paid time off
at all.

~~~
Spare_account
>I'm actually surprised that many part time employees are given paid time off
at all.

And there's the rub: it's expected over here.

~~~
Gwypaas
Or as in Sweden, if you work hourly you usually don't get PTO. Instead you get
it as cash, about 12% extra on the salary a normal worker would get.

------
maxk42
I was hoping this article would explain why they suddenly left 600k people
stranded instead of winding-down the business, but no such luck!

~~~
EpicEng
How do you continue to fly airplanes around when you're bankrupt? I don't
think "winding down" is much of an option for an operation like this.

~~~
joncrane
Surely even the below average business owners will know at least a week in
advance that they're going bankrupt?

~~~
jdsully
Once bankruptcy is inevitable it's a mad rush from creditors to secure assets.
The net effect is your "bankrupt" as soon as it appears inevitable regardless
of whatever timeline you would have planned.

Further continuing to trade after your insolvent is a form of creditor
preference. In most cases your customers become just another creditor upon
bankruptcy. This is of course illegal.

~~~
michaelt
Insolvency law already allows for some creditors to be higher priority than
others.

Some would say the people who are in a foreign country and owed a flight home
should be the highest priority creditors. And if operating a flight is the
most efficient way to pay that debt....

~~~
jdsully
Giving customers higher preference would indeed be possible if agreed ahead of
time. But it would increase borrowing costs as bond holders would now be
subordinate. Don’t expect it to happen unless a law mandates it - consumers
don’t have enough bargaining power.

In the case of this bankruptcy preferring customers would be changing the
rules after the game had started. Even if you did it a bankruptcy judge would
be in his rights to claw back the cost from the consumer.

~~~
shkkmo
It makes zero sense that lenders, who agreed to take on some risk, are allowed
to steal money from customers who paid a product they never received and never
decided to take on risk.

~~~
jdsully
You take on the risk when you pre-pay for services you haven't yet recieved.
By law you are also a creditor just like a bond holder.

Similarly when you eat at a restaurant and pay at the end the restaurant is
providing you credit. Most people don't think of it this way because the
transactions go smoothly and the distinction is irrelevant. But it does affect
what rights you have if something were to go wrong.

~~~
shkkmo
> You take on the risk when you pre-pay for services you haven't yet recieved.

There are perhaps cases where this is true, when purchases are informed the
the sketchy financial state of the company in advance and have the information
necessary to assume the risk. It is ridiculous to assert that regular
customers, who are purchasing an Airline ticket in the standard way that
almost every, has done due diligence and should be treated the same as
creditors who are given detail financial information.

> Similarly when you eat at a restaurant and pay at the end the restaurant is
> providing you credit. Most people don't think of it this way because the
> transactions go smoothly and the distinction is irrelevant. But it does
> affect what rights you have if something were to go wrong.

I think most places consider "dine and dash" a crime. You go to jail for theft
because it is not a loan. Do you know of any jurisdictions that actually treat
this as a loan?

~~~
jdsully
The fact the consumer didn’t do any due diligence doesn’t change the
situation. Perhaps the situation should change - but somebody has to lose when
promises can’t be fulfilled.

As for dine and dash there is a difference when there is no intent to pay. If
somehow between when you ordered and when it came time to pay you declared
bankruptcy then the resteraunt is SOL. The short timeframe just means its very
unlikely you had intent to pay.

For bankrupt companies you will see attempts to limit future expenses (i.e.
cancelling employee trips etc) but the fact that there is a continual stream
of transactions makes it much messier. It is fraud if the company racks up
large numbers of unusual expenses just before bankruptcy is declared.

~~~
shkkmo
> The fact the consumer didn’t do any due diligence doesn’t change the
> situation.

It is the reasonable expectations that differ. Customers are not expected to
ask for (and will not be granted) financial information or proof of
collateral. It is completely unreasonable to give those customers the same
level of risk as creditors who are expected to ask for (and receive) such
information.

> It is fraud if the company racks up large numbers of unusual expenses just
> before bankruptcy is declared.

So when a company does not currently have the financial ability to fulfill a
purchase (say without obtaining a government bailout), how is it not fraud to
sell a product and collect money without informing the customer of that risk?

> As for dine and dash there is a difference when there is no intent to pay.

I'd like to see you try telling your waiter "I'm a bit tight on money right
now, you'll have to wait for next month for me to pay my bill." Let's see if
they call the cops and you get arrested. Your argument is rather ridiculous.

------
usr1106
The article is a nice read, but it fails the answer the question in the
headline. If a company has a huge business and it's shrinking by a couple of
percent a year, does the company unavoidably go bancrupt? I don't think so.
There are plenty of successful businesses with a smaller customer base. The
problem is mismanagement, corporational slowness, lying about the facts,
creative if not illegal bookkeeping etc etc. Best demonstrated by the fact
that management has got multi million bonus payments during recent years.

~~~
tonyedgecombe
You can’t shrink when you are so indebted.

------
xioxox
It was mostly their £1.7bn debt:
[https://www.theguardian.com/business/2019/sep/23/thomas-
cook...](https://www.theguardian.com/business/2019/sep/23/thomas-cook-debt-
brexit)

Without that they could have shrunk or restructured.

~~~
NeedMoreTea
Two days later their CEO had near doubled that to £3.1bn.

[https://www.theguardian.com/business/2019/sep/25/thomas-
cook...](https://www.theguardian.com/business/2019/sep/25/thomas-cook-balance-
sheet-deficit-3bn-before-collapse)

------
golover721
Bankruptcy in the UK is significantly different than in the US where companies
often continue to operate under Chapter 11 in a way that may not be noticeable
to customers. The UK as far as I know doesn’t offer such protections.

~~~
jayflux
It’s not just the US where they do this but other countries in Europe also.
The U.K. govt are looking into doing this for aviation as the US model was
brought up in the commons when discussing Thomas Cook.

------
imgabe
I can understand going out of business. I don't understand how it happens so
suddenly from one day to the next to the point where people had no way to get
home. Like, when those people booked their vacations, or even when they
departed on their vacations, Thomas Cook just had no idea that they wouldn't
have the funds to complete their trips? Do they just not look at their
accounting statements and bank balances or something? How does something like
that come as a surprise?

~~~
michaelt
Look at things from the perspective of a CEO who knew his only chance to save
the company (and his annual bonus) was to gamble all-in on getting a
government bailout.

From that perspective, wouldn't you want to make a bankruptcy as messy as
possible?

------
magashna
How can a company in this industry just strand 600 thousand people!?

~~~
notahacker
Because you can't fly aircraft when you're bankrupt, and the funds to
repatriate people are pooled by the industry, not retained by the individual
failing travel company.

~~~
sib
The challenge with a statement such as this is that it's stated like it's a
natural law ("you _can 't_ fly aircraft when you're bankrupt"), rather than
the result of a particular set of legal structures in a particular country. In
the US, for example, you can certainly fly aircraft if you are undergoing a
so-called "Chapter 11" bankruptcy (designed for reorganization.)

------
surfsvammel
Part of the niche they where in have seen margins and bottom lines decline for
a long time.

Airlines focusing on the budget segment has been going out of business for
years. Is Norwegian next in line?

If the European airlines keep going out of business we might see airlines from
outside of Europe operating intra-Europe flights. Maybe an Emirates flight
from Paris to Marseille or Qatar Airways flying Stockholm-Helsinki?

~~~
Symbiote
They aren't really an airline, that's just part of the business.

Foreign airlines aren't generally allowed to operate intra-EU flights
(something Brexit is disrupting, many British planes have been registered
elsewhere in the last year or two).

------
kerrsclyde
More than a quarter of their profits were being used to pay interest on loans
taken out after years of decline.

The management seem to do a good job of diverting attention from the debts but
the company was seriously badly managed, it was only a matter of time before
it went bump.

That's not to mention the 2006 Carbon Monoxide poisoning incident which meant
people like me resolved never to use the company again.

~~~
barbegal
I think you mean a quarter of their revenue.

------
tim333
>In 2000, there were 0.61 Euros to the British pound.

The writers don't seem very good at maths. I think they mean 0.61 pounds to
the Euro.

Also as to why they went bust the top comment on the previous discussion seems
more telling to me
[https://news.ycombinator.com/item?id=21045550](https://news.ycombinator.com/item?id=21045550)

------
switch007
> Meanwhile the U.K. is, like the rest of the world, getting warmer.

I'm yet to speak to someone who doesn't look at me like I've got 3 heads when
I mention this as a possible reason not to go abroad. I even mention our
recent heat waves. Nope, doesn't register. Hot = abroad.

I mean, if there's data to say otherwise, I won't deny it. Just find it funny.

~~~
benj111
I've made an increasingly conscious decision to give up flying. I never really
liked the flying itself (well waiting in airports) but every year my family go
to some random bit of the UK, and all have been nice holidays, it helps that
I'm not one for sitting on the beach, and I don't like it too hot to do
anything. I won't rule out doing a trip of a lifetime, but compared to a
package holiday to Spain, Greece, Ibiza. Britain can hold its own.

I've found an inverse correlation between supposed touristyness and what I
actually enjoy, so I don't rule out those countries, but it's getting to the
non touristy parts of those countries, when all the flights are to tourist
destinations.

~~~
tonyedgecombe
We’ve been doing this for years, a days walking followed by fish and chips
keeps me happy.

------
dehrmann
> Today, a flight from the U.K. to a city on the continent can cost the same
> as or even less than an (overpriced) train ticket from central London out to
> the airport

Looking at you, Gatwick Express.

~~~
ironic_ali
Gatwick express: lol

------
ptah
>600,000 people stranded abroad >For the 150,000 stranded customers who are
British, the U.K. government has just announced

so the majority who are not british are just stranded?

------
paulpauper
I don't get why this is such a big deal. airline bankruptcies are not that
uncommon

~~~
tonyedgecombe
Lots of stranded customers, most of whom don’t have the wherewithal to get
themselves home.

------
autokad
I dont want to go anywhere that involves getting into a plain such that I:

\- get talked to like I'm a dog by TSA

\- forced to wait hours in lines to get through security

\- violated by being forced to remove my belt and shoes

~~~
jaco8
... and in the future you will look to this experience as having been VIP,
because in the future you will check-in naked , shackled to the floor with a
hole in it so that you do not do anything untoward to others and the robot
crew. The hole is to avoid the constant toilet trips necessitated by the
crappy food . If you travel cattle-class you will get your cloth back in a
basket , mixed together with the cloth of similar classed passengers. You will
be allowed to re-dress once getting thru airport security , which involves
getting taken apart and put together again by the intern of the day.

~~~
autokad
dont give them ideas

