Thomas Cook

Posted on February 12, 2020 · Posted in Co-operative News

More than 150,000 holiday makers had to be repatriated following the collapse of travel agents Thomas Cook.  The business failure could lead to the loss of the firm’s 21,000 employees’ jobs – 9,000 of these in the UK – unless the administrators can sell at least part of the business as a going concern.  While some of those staff are cabin crew and pilots, a much larger proportion work in retail outlets.  And thousands of those are likely to be former employees of the Co-operative Group.

The Group entered into a joint venture with Thomas Cook and the Midlands Co-op back in 2011 – called Thomas Cook Co-operative Travel – to merge the three high street operations.  The arrangement was intended to reduce operating costs across the three businesses by £35m a year.

Under the terms of the joint venture, Thomas Cook owned 66.5% of the merged business, the Co-op Group owned 30% and the Midlands Co-op (which subsequently became Central England Co-op) held 3.5%.  The joint venture had 9,000 staff and 1,200 branches, of which 400 had been Co-operative Travel outlets owned by the Group.  Hundreds of jobs were lost through the merger.

A ‘push’ provision in the deal meant the Group could require Thomas Cook to buy out its share of the merged business after five years.  This was triggered three years ago, leading to Thomas Cook paying the Group £50m in instalments – which have all been paid.  Central England received £5.8m for its stake.  Thomas Cook had two years to wind down the use of the Co-op Travel branding.

Rod Bulmer, the then chief executive of consumer services at the Co-op Group, said at the time: “Going forward, having a minority stake in a travel business does not fit with the strategy of the Co-op.  The financial arrangements for exit that were put in place as part of the original JV agreement represent the best value for our members. The payments we receive from the exit will be used to invest in our core business areas.”

However, there was confusion because the Co-operative Travel brand has continued.  Several regional co-operative societies operated travel agency operations under the same Co-operative Travel branding, unaffected by the tie-up with Thomas Cook.  These societies included Midcounties, Lincolnshire, East of England and Chelmsford Star.  There was further confusion because although the Midlands Co-op sold its Co-op Travel business, it then merged its core business with Anglia Co-op to become Central England Co-op – taking on Anglia Co-op’s travel business, which is also branded as Co-operative Travel.  That continues as a division of Central England Co-op.

Both brands have a long heritage.  Thomas Cook was considered the pioneer of package holidays – which began in 1841 with a railway excursion from Leicester to Loughborough (which is commemorated with a statue outside Leicester rail station).  Co-operative Travel was founded as an excursion department of the Co-operative Wholesale Society in 1905, also initially focused on rail journeys.  Its first overseas holiday guide was launched in 1920.  By the 1950s it was one of the industry’s giant top five and was called Travelcare until its relaunch as Co-operative Travel in 2007.

The acquisition of the Group and Midlands’ Co-operative Travel businesses is now regarded as one of the factors in the failure of Thomas Cook.  While mergers with not only Co-operative Travel but also previously with MyTravel in 2007 were seen as potentially generating substantial economies of scale, these were not delivered with sufficient speed.  Many cities and towns continued to have more than one branch of the enlarged business, which was operating with excessive overheads.

Moreover, the debt involved in achieving the merger has proven crippling for Thomas Cook.  It had debts of £1.1bn, which were costing £170m a year to service.  In the 2018 year it recorded a loss of £163m on revenues of £7.4bn.

What is strangest about the Thomas Cook operating strategy is that this debt burden was taken on as part of the process of enlarging the retail footprint of the business just at the time when more and more of the travel commerce was moving online.  Not only were consumers booking package holidays online rather than in-store, but many more were bypassing travel agents altogether through mix-and-match flights and hotel bookings, via specialist websites.  Airlines such as easyJet and Ryanair were also encroaching on the Thomas Cook traditional territory.

Brexit was in a sense the nail in the coffin.  Many British consumers were reluctant to travel to European destinations with the lack of clarity over issues such as visas, the European Health Insurance Card (EHIC) and driving licence validity.  The loss of EHICs will drive up travel insurance costs – and for some patients with chronic or acute conditions make European travel in effect impossible.  The Brexit impact on sterling – down 20% against the euro at one point recently – is perhaps an even more important factor.

Those co-operative societies still running the Co-operative Travel brand say they remain optimistic about the viability of their operations.  “Midcounties did not enter into the agreement and have continued to operate the Co-operative Travel  brand independently throughout, growing quickly and profitably from 2011 from £65m turnover to over £400m today, operating 60 high street shops, 160 home-based agents and 80 independent agents as part of the Co-op Consortium,” said a Midcounties’ spokesman. He added that: “Midcounties is not affected by the Thomas Cook failure”.

Similarly, Channel Islands Co-op refers to its own travel business – branded as Travelmaker – as “successful”.  Carl Winn, head of Travelmaker, said: “We would like to advise all our customers who have booked a Thomas Cook, Manos or Airtours holiday through a local Travelmaker branch that they are protected with ABTA and ATOL bonding.  All our in-store travel advisors are happy to guide any customers with outstanding booked holidays through the process of claiming their money back.”

A spokeswoman for Central England Co-operative said: “We have been truly saddened by the news regarding Thomas Cook as we have worked closely with them as part of our travel business for many years. As an independent travel agent our priority has been to ensure that all of our customers currently out in resort get back safely to the UK…. We can reassure our customers that their package holiday booked with a Central England Co-operative Travel branch is financially protected under the CAA ATOL scheme.”

The Co-op Group took the decision to extract itself from the travel business when the Group was under the leadership of Peter Marks, who, as part of the joint venture arrangements, became a director of Thomas Cook Group plc in October 2011, stepping down in February 2014.

In 2009, the last year that the Group separately reported trading figures for Co-operative Travel it made a small operating profit of £2.5m, down from £7.9m the year before.  In the following year, Travel’s financial performance was reported in the annual report along with other items in a loss on discontinued activities.  It looks as if Travel would have itself been on a journey towards a large loss without either major restructuring or else the sale to Thomas Cook.  Instead it not only avoided potentially substantial losses, but also actually generated a significant capital sum.