Thomas Cook, a popular tourism provider based in the UK, has recently gone out of business and stranded some 600,000 passengers across the globe; that wouldn’t happen if it were a US company.
Thomas Cook Folds After 178 Years
On September 23rd, 2019, Thomas Cook ceased operations. The UK tour operator managed more than 500 retail locations, flew more than 100 planes to 50 countries, housing customers in their 150 hotels and resorts.
The company had financial trouble for some time, the extent of which, many of their customers were unaware. As a former resident of the UK, I found it surprising that UK holidaymakers were still sitting down in travel agencies, making payments over time, and paying far too much for trips in the age of the internet. Apparently, Thomas Cook succumbed to the same market challenges.
The Government Is Repatriating/Rescuing Passengers Abroad
Due to ATOL insurance, the government is repatriating the most UK citizens since World War II. They’ve arranged rescue flights for citizens stuck abroad, though non-UK citizens who were stranded by the carrier have been referred to their own governments for flights home. The repatriation efforts could take up to 15 days to complete. Some travellers were surprised that despite buying travel insurance through Thomas Cook they were stranded all the same.
Receivership vs. Bankruptcy
Receivership and Bankruptcy are two very different things. UK businesses tend to go to what Americans consider a full bankruptcy (Chapter 7.) Most businesses in the US file a Chapter 11 bankruptcy which allows them relief from their creditors and contracts in an effort to re-organize, in the UK this is called Administration. US Airways, Delta and United have all filed for bankruptcy several times in addition to their merged companies (TWA, Northwest, Continental); American has filed once.
None of those carriers shut their doors and stranded passengers because they filed Chapter 11, allowing them to narrow their obligations, trim operations and try again.
According to the Financial Times of London: one of the smarmiest strategies were employed:
“Hedge funds seeking to profit from the group’s demise, by buying credit default swaps that pay out if it goes bust, were suspected of also buying bonds enabling them to vote down a rescue. One insider told Lombard: “I think there was a good deal of truth in someone trying to buy in such scale to have been involved in the vote”. But not all bondholders were in the decisive talks and a vote didn’t happen.”
Essentially, it was a hostile takeover but less honest. The situation was so dire, even the UK wouldn’t back a loan to save the firm, interesting since the repatriation costs have to be staggering.
Is It Possible?
It is possible in the same way that anything is possible – but it’s not probable. It is also possible for an airline to simply decide to stop flying and shut their doors if they so choose. But for whatever reason, the US sees much larger bankruptcies, finds a way through the mess, and the airlines, for their sins, continue to fly.
Delta filed Chapter 11 in 2005 with $17bn in debt and emerged from bankruptcy nearly two years later, profitable. They’d go on to merge with Northwest the following year forming, then, the world’s largest airline. By 2018, Delta Air Lines was the third largest airline by revenue in the world, making money from both flying and lucrative banking partnerships.
That’s not to say that all US companies simply go into Bankruptcy and emerge successfully. Continental, Eastern, and Pan Am were all in Chapter 11 Bankruptcy in the same five weeks in 1991. Pan Am sold off their aircraft and routes to winning bidders, United taking aircraft and personnel with the Pacific routes, American and US Airways cleaning up in Latin America, and the Northeast corridor with Eastern.
US Airways filed their second bankruptcy just 18 months after exiting their first bankruptcy, after which Doug Parker and Company merged America West. He ultimately took a similar opportunity from the helm of US Airways to “merge” with American, forming the now largest airline in the world (by most metrics.)
Essentially, in most cases, there are better solutions not only than shutting down eventually but certainly than shutting down suddenly and while some carriers still do this in the US, they are not massive concerns such as Thomas Cook.
While I lived in the UK, I found far more businesses simply shut their doors leaving employees, customers and vendors holding the bag than those who went into administration and re-emerged to live another day. In the case of Thomas Cook, it’s a shame not just for the 600,000 passengers stranded when the airline shut down, but also for their 16,000 employees. It would have been far more beneficial for those affected to have found a merging partner as BMI did with British Airways to protect customers, vendors and employees alike.
What do you think? Why do you think Thomas Cook was left for dead? Was the debt load to large to overcome? Were there bad actors at work hellbent on putting the company out of business? Was it something else altogether?