Time travel with Thomas Cook
The demise of a package tour giant highlights changes throughout UK business over the last couple of decades, says Angus McCrone
The last time I wrote about corporate events in the package holiday industry was way back in 1993, for the Sunday newspaper that employed me at the time. It was an article about the £221m bid by Airtours for Owners Abroad – an offer that was, ironically in light of the sector’s later problems, blocked by the competition authorities.
I was pleased with the article. Unfortunately, the main feedback I got came in a letter to the editor from a reader, who had spotted that the caption on the accompanying photograph (not put there by me) had an apostrophe out of place. The reader demanded that the paper sack the journalist who wrote the article.
Fast forward 26 years and I am watching my apostrophes like a hawk as I set out to examine the demise of Thomas Cook, the venerable travel agency, and tour and airline operator pulled into liquidation by £1.9bn of debt and a business model that, in the age of internet booking, was increasingly flawed.
The story highlights not just changes in the patterns of tourist expenditure, but also shifts in the corporate landscape and the markets that nobody could have dreamt of in the early 1990s.
Shift number one is the increased part played by investors who stand to gain when a company’s fortunes decline. In the case of Thomas Cook, short positions in the shares were declared in August or September by Melqart Asset Management (equivalent to 1% of the entire equity), TT International Investment Management (3.8%), Kite Lake Capital Management UK (1.3%) and Whitebox Advisors (3.2%). Bearish trades were also in evidence in the company’s debt, with hedge funds such as Sona Asset Management and XAIA Investment holding credit default swaps and standing to gain an estimated £200m from the company’s fall into bankruptcy in late September.
A related point is the way distressed-debt markets have grown up over the decades. In the case of Thomas Cook, investors were reportedly quick to buy some £40m of debt in the company from NatWest for just 11% of its face value.
Shift number two is the executive pay issue. Of course, there was controversy in the media about boardroom “fat cats” in the 1990s, but a lot of it centred on the bosses of newly privatised utilities, some of whom had salaries that were not too much north of £100,000 a year.
Those are humble wages by today’s standards in large quoted companies. In the case of Thomas Cook, the last three chief executives, who ran the company from 2003 until its collapse in 2019, are estimated to have earned some £27m between them, plus share bonuses.
Shift number three is the way that Chinese companies and investors have become influential players in the UK. Optimism in the summer of this year about a proposed rescue of Thomas Cook owed nearly everything to the willingness of Chinese travel group Fosun to buy a majority stake for £450m. In the end, even that plus a proposed debt-to-equity swap by lenders was not enough.
Too hot to handle
Shift number four is the way global and political issues – especially climate change and Brexit – have been shaking companies’ foundations. One of the many reasons for Thomas Cook’s weak trading performance since its shares hit their last peak, of 150p in May 2018, was the unusually hot UK summer weather that year that pushed British tourists towards considering holidays at home. Another was Brexit, which undermined the affordability of foreign holidays thanks to a weaker pound, while uncertainty around the process has prompted many to delay bookings.
All this talk of package holiday companies and rogue apostrophes reminds me that the early 1990s brought not just the Airtours-Owners Abroad bid but also the start of my regular column for The CA magazine about the trends and, yes, the mishaps in the City of London and the wider financial markets.
Sadly, this is the last of those columns. It has been a fascinating period to track, one that has left the Square Mile and beyond festooned with countless glass towers, but also led to new question marks about the need for one, all-embracing European time-zone financial hub