Vacation Giant & Airline Thomas Cook Verges on Collapse

Citi Group analysts slashed their price target to zero.

By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.

The shares of 178-year-old British global travel company Thomas Cook are in free fall, tumbling 10% on Thursday and another 40% today, after it issued a zinger of a profit warning for the second half of its fiscal year — the third profit warning in less than a year — and announced a £1.46 billion loss before taxes for its fiscal first half, ended March 31. It also unveiled a 12% slump in tour operator bookings, and a 37% rise in net debt.

The company’s shares are now worth just 11 pence a piece, down 92% from 130 pence a year ago. At that time, Thomas Cook Group was worth £2.5 billion. Today, its worth a couple of hundred million.

Citi Group analysts said first thing this morning that the company has “zero equity value” and slashed their target price for the shares from 28 pence to zero pence. The analysts also cited a warning from Thomas Cook’s auditor, EY, regarding “material uncertainties” over the group’s sale of its airline, a sale on which a new £300 million loan facility depends.

Thomas Cook Group has been seeking a buyer for Thomas Cook Airlines for some time. Though many of its routes are desirable — to popular vacation destinations such as Palma de Mallorca, Pointe-à-Pitre, and Santorini — the airline is bogged down with aging, less fuel-efficient aircraft. Potential buyers are scarce, and all of them would attract close scrutiny from EU antitrust authorities.

Thomas Cook needs to offload the airline as quickly as possible to reduce its debt overhang and win itself a little added time. The sale could raise as much as £600 million as well as sharply reduce its pension commitments and put an end to the millions of pounds it spends each month on its planes. But finding a buyer quickly at a time when Europe’s airline business is already suffering from “short-haul overcapacity,” in the words of Ryanair CEO Michael O’Leary, is not going to be easy.

“Like the auditors, we see material uncertainties around the airline sale and the new debt facilities,” said the Citigroup analysts, adding, for good measure, that the tour operator’s poor performance could “unsettle consumers and drive further weakness in bookings”. It could also prompt hotel partners to tighten payment terms, putting further pressure on the company’s finances.

Thomas Cook blames its latest round of losses on a variety of factors, first and foremost a £1.1 billion write-down of the value of My Travel, the business it acquired in 2007. Thomas Cook has also struggled to contend with the meteoric ascent of travel-oriented websites as well as fierce competition from German tour-operator colossus TUI, which served 5.3 million British passengers in 2018, more than double Thomas Cook’s 2.4 million.

The firm also blamed some of its woes on higher fuel and hotel costs as well as unseasonably warm weather in the UK. And, of course, the catch-all scapegoat, Brexit, uncertainty over which is apparently keeping Britons from booking summer holidays.

There has been “an uncertain consumer environment across all our markets” during the first five months of this year, said Peter Fankhauser. “The prolonged heatwave last summer and high prices in the Canaries reduced customer demand for winter sun, particularly in the Nordic region, while there is now little doubt that the Brexit process has led many UK customers to delay their holiday plans for this summer.”

If true, this could be bad news not just for UK tour operators like Thomas Cook but also for European airlines, many of which are already struggling with wafer-thin margins and tightening financial conditions, and popular tourist destinations. In Spain, for example, Brits accounted for 22% of the 80 million foreign tourists that visited the country in 2018. While the number was down some, British visitors still dwarfed the number of visitors from second-placed Germany (11.8 million) and third-placed France (10.8 million). As for Thomas Cook, it will have its work cut out staying alive long enough to keep serving its customers for the duration of this year’s holiday season. By Don Quijones.

“Zombie firms,” kept alive by low interest rates, account for up to 14% of UK companies. Read… Businesses in “Critical Distress,” Bankruptcies Surge in the UK

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  32 comments for “Vacation Giant & Airline Thomas Cook Verges on Collapse

  1. If it was an American company with the same set of accounting books it would still be trading at $100 a share or more. P/E ratios or anything else for that matter doesn’t matter in America.

    • MC01 says:

      Oh, we have plenty of those money-burning unicorns here in Europe as well. The main difference is that most haven’t bothered with an IPO yet.

      There’s a Berlin-based company called Emmy (Eddy in some cities; don’t ask why) which specializes in renting electric scooters. If you go in a large German city like Munich or Frankfurt you are bound to see many of them. All parked in strategic locations around the city to help advertise the business. ;-)
      As it’s a private company we have no clear idea how their financials are but everybody is salivating over a rumored IPO which would unveil what I think are large losses. Don’t ask me why people love companies that lose all that money.

      But Delivery Hero, another Berlin-based unicorn which will carry meals to your door in a magical basket hanging from its horn, went through an IPO in 2017 which revealed what I can only call horrific financials, with last reported fiscal year with €550 in revenue and €220 million in losses. Their situation is so unappetizing they sold off the bulk of their German operations to Dutch competitor in January to raise cash and get out of the cutthroat German meal delivery market they helped create.
      Yet their shares never went below the €28.50 IPO price and last year they briefly kissed an absolutely undeserving €50.
      Delivery Hero has no unique product nor technology, just a host of competitors as ready as they are to burn through cash to flash big growth numbers. They aren’t the Swire hong which built its fortune on de jure monopolies nor Apple with its carefully crafted corporate image (and big profits): literally any startup can get into the meal delivery business. At this point it’s also safe to say that they’ll never be profitable but this doesn’t stop people from buying their shares like there’s no tomorrow.

  2. Josh says:

    They are losing 1 billion per quarter. Shouldn’t they be worth $80 billion like Uber? I’m very confused.

  3. Kent says:

    I’d guess owning the airline is the big money loser. A travel operator shouldn’t have a lot of fixed assets, and should be able fairly clearly couple expenses with revenues. Assuming of course some PE firm didn’t load them up with unnecessary debt.

    • MC01 says:

      TUI owns a whole host of airlines, including storied Corsair of France and the now renamed Hapag-Lloyd Flug. They are doing rather well for themselves. Thomas Cook is just suffering from a couple decades of poor acquisitions and business decisions like the My Travel fiasco: the problem is of course after sweeping problems under the rug for years they have now become impossible to ignore.

  4. Nicko2 says:

    Thomas Cook is also busy expanding their branded hotels; that’s where the money is.

  5. Petunia says:

    I hate the way vacation travel is purchased today. Growing up in NYC we used to go on charter tours put together by Liberty Travel. They put a package together, flight, hotel and transfers, a couple of hotel choices and made it as cheap as possible. We went wherever they could put a cheap tour together. Every Sunday they placed a giant ad in the NYT with all the choices. I had great vacations with them.

    • mikey says:

      I got stuck on a remote island after they told me to pickup return ticket at the destination airport. At least I got the money back from the credit card company

    • Anon1970 says:

      The airline industry was very different in those days. Before airline deregulation in 1978, airfares tended to be high and air travel was largely unaffordable for most Americans. If airfares had gone up as much as local bus fares (on a percentage basis) over the past 40 years, most people would be staying home.

      • alex in san jose AKA digital Detroit says:

        No kidding. I remember the term “jet set” for those who could afford to fly.

        Local bus fare when I was a kid was a dime, then it became a quarter. Local bus fare where I am now is $2.50 so depending on where you start, it’s 10X -20X

        And BTW, in the old days people to talk about “getting the Cook’s tour” or you’d invite someone to your new place and say, “Let me give you the Cook’s tour” this is the company that inspired that saying.

  6. Dilbert says:

    If its really Brexit hurting summer tourist travel, then that would have been easily fixed by offering a Big Sale right after March 29. By that point, the can had been kicked to Halloween Eve and everyone knew that they still could travel to Europe this summer without worrying about “Papers Please”.

    I still say Brexit is the Middle Manager’s Dream. The Big Boss yells, “why haven’t you made your targets?” Today, even the incompetent Middle Managers know to quickly answer with “It’s because of Brexit, Sir!”

    • Jason says:

      Indeed, and the largely Remain-oriented media is happy to parrot the same line.

  7. Fernando says:

    I travel almost weekly for work. Airports, hotels and restaurants are packed…is not the industry, is probably internal corruption, fraud and looting by it’s own administration that destroyed this company…

  8. Iamafan says:

    A long time ago, I think I bought their Traveler Cheques in London.
    I still have some Amex ones.

    • Realist says:

      I remember a time when travellers cheques issued by Thomas Cook were good as money in Britain and accepted in any shop. If you had the bad foresight to use Amex issued cheques in Britain, the only way to cash them in was at a bank

      • Anon1970 says:

        Nowadays, major credit cards are widely accepted throughout the world. If you are going to travel abroad, make sure your credit card does not charge the normal 3% foreign exchange fee. Many still do but some widely available cards do not.

        • Javert Chip says:

          More properly called a “foreign transaction” (not “foreign exchange) fee – this is charged when a transaction is initiated outside the USA, regardless of the currency involved.

          It’s definitely not a “foreign exchange” fee because even if you pay your bill in USD, you still pay the “foreign transaction” fee.


          You purchase a 100 euro meal (about US$113) in Spain:

          1) You accept the kind offer of paying your dinner tab in USD, thinking that avoids the “foreign transaction” fee. The merchant uses whatever foreign exchange rate he wishes (almost guaranteed to be a VERY unfavorable rate, usually costing you around 5%), and converts your 100 euro bill into something more like US$119 – you have just been screwed out of US$6.

          2) In addition, your credit card bank will still charge 3% of the US$119, or $3.60.

          BOTTOM LINE: thinking you cleverly avoided the foreign transaction fee by paying in USD has cost you US$9.60 (US$6 scammed by the merchant + US%3.60 foreign transaction fee).

          Some banks and most credit unions offer 0% foreign transaction fee cards; your foreign transaction charges (plus foreign ATM withdrawals) are converted to US$ at close to the best rate available the day it posts to your account.

  9. Maximus Minimus says:

    Thomas Cook group also owns Condor Airlines, so this will be bought or disappear, as well. Not a great loss to quality travel, but wonder who would replace the routes.

    • Crazy Horse says:

      Condor Airlines? Is that AKA Buzzard Airlines I once flew from Bogota to Cartegena with one engine seized and the other puking oil?

    • Javert Chip says:

      Generally speaking, airline routes between sovereign notions involve governmental treaties (or, more likely, amendments to previously-existing aviation treaties). Currently it is unclear who actually “owns” foreign landing rights, but airlines lease & sap routes as if they were airline property (very unclear how this is represented in airline accounting books).

      Thus, foreign landing rights have financial value even for failing airlines. Monetary value is determined by demand for the landing rights (landing at Heathrow = very high value; landing in Siberia = not so much), and how desperate the failing airline is to sell.

  10. Jack says:

    Thank you Don,

    Thank you lads for the the humorous comments, but jokes aside,

    – as pointed out by some comments

    ( airline business is a tough business to make profits, all major airlines have in the past either partnered with others to cover the routes that they fly or relied heavily on support from government to prop them up in cases where they are considered “ National airlines “).

    – The volatile oil price is a major headache for keeping the margins of profits reasonable without losing customers.

    – The idea of having a vertically integrated business that offers you everything from A to Z in a particular area of Economic activity usually runs into trouble as the business finds itself having to compete with ( well established and leaner operations with high quality products).

    – for a travel company to expand into airlines business and what that entails in terms of Airports fees, aircraft maintenance and fuel costs, government and civil aviation legislation compliance issues and fines is purely ludicrous and have to be bizarre to be sold to the investors as a winner!

    On a lighter note, I guess the “ Poms” have recognized ( after bitter medicine administered by the past economic crises) that enlarging the size of your debt and scarcity or non existent of future profits doesn’t automatically translate into a great company

    unless you have a Jesus like figure like Musk who can turn water into lithium batteries by a mere tweet while on a stupor!

    That said though once Thomas Cooke is Broken up and sold into separate businesses still can be resurrected ( by name) and after heavy discounts on the reminder of what CITI calls zero assets now!!!

    Off course the current investors or lenders are screwed .

    • Thor's Hammer says:

      Why would any businessman with a functioning brain cell acquire an airline and not structure it as a separate business legally isolated from the parent corporate organization?

      • A Citizen says:

        Because it is a fantastic place to siphon funds from. Losses are the rule, and, if you’re cagey, an auditor would have to dig deep.

        It get’s interesting as soon as one of their no-doubt-meticulously-maintained-aircraft does the completely predictable and kills a plane load of customers.

  11. kk says:

    Apart from Thomas Cook’s workers and owners, the end of this company means little in the long run but as an example of the way the world is changed then the death of the first travel agent after two centuries (!) is very symbolic.

  12. frank klevenhaus says:

    A tough business.. Yeah .
    I have just booked 2 return tickets from Copenhagen to Manchester UK in October : 1450 dkr. Including luggage.
    Close to 170 £ – 216 $ -194€
    No wonder the airline industry is having a hard time.
    Terminals are crowded

    • DanR says:

      Shouldn’t everybody be paying off their mortgages and building emergency funds instead of going on larks LOL?

  13. Dave Mac says:

    Isn’t the internet great?

    “Disruptor” companies have destroyed many Main Street jobs (with decent pay and conditions) and replaced them with minimum wage and zero hour contracts.

    Yet nobody seems to care about it, until they lose their job, of course…

  14. Pete Stubben says:

    Ryan Air from Dublin to Porto, Portugal — $40…incredible (but be prepared to be treated like a pack animal and u’d better travel light!!!). Astounding how fast the world is changing and it’s just sooo hard for some/most b&m businesses to keep up… PJS

    • upwising says:

      The 90-mile public bus trip from Brookings, Oregon, to Medford, Oregon, on state-subsidized buses is $39 one way.

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