Thomas Cook’s demise should worry the entire travel industry

The saga of Thomas Cook is a sad and miserable one – and an infuriating one for the hundreds of thousands of customers who may be stranded far away from their homes. Whatever the outcome of the rescue talks that began yesterday, our changing habits and changing technology mean that the brand of Thomas Cook will never be the same again.

What’s happened? Thomas Cook saw, in the dawn of the railway age, that people needed help to organise their travel. It was in 1841 that he got together 500 people for a railway trip from Leicester to Loughborough to go to a temperance rally. Other excursions including one to Scotland followed, but it was his son John who developed the idea of the package tour of continental Europe, where everything – tickets, hotels, trips to local sights – were included. Young aristocrats had done their grand tours of Europe, complete with their entourage and letters of introduction to the local British consul. The genius of Thomas Cook & Son was to create a service for ordinary people to experience what previously had been the privilege of the very rich.

It was a business model that has survived to this day, though the largest market for foreign travel now is the burgeoning Chinese middle class, eager to get a sight of the rest of the world, not northern Europeans who want a cheap week in the sun.

The fact that the basic model survived enabled Thomas Cook to survive as a business, despite two world wars and multiple changes of ownership and management. It was nationalised for a while between 1948 and 1972, owned by among others Midland Bank, merged and unmerged with other travel groups. Bits were sold off, bits were added on. In 2001, what was left was sold to a German company C&N Touristic, which was in turn merged with MyTravel Group in 2007. It is that merged company, called Thomas Cook Group, that is currently seeking some way to carry on.

That is very much a shorthand account of the twists and turns of ownership. It is probably fair, if unkind, to say that this will be studied in business schools as a classic example of managerial failure: how to wreck a globally recognised brand, and one operating in a huge and growing market. Travel and tourism is the world’s largest industry, accounting for some 10.5 per cent of global GDP.

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There is, however, another side to the story. Travel and tourism may be a huge and growing industry but its structure is changing very fast. Three things have weakened the position of the tour operators: budget airlines, the internet, and changing vacation patterns.

Before Ryanair and easyJet revolutionised European air travel, charter airlines were the cheapest way to fly. Now any of us can buy a seat, provided we book at the right time and shop around a bit, at close to the price that a tour operator’s airline has to charge its parent company for one. So the advantage to the tour operator that it can make a profit on the flight has largely disappeared. 

So, too, has the ability to book accommodation more cheaply than the ordinary punter. Yes, they can still block-book a floor of some hotels at a knockdown price, because it may suit the hotel owner to know that it has some guaranteed revenue. But the hotels now have other options. They can sell through the online booking sites, and will have their own websites and databases of potential clients. The tour operators’ advantage of being able to buy cheaper than anyone else still exists, but is much weaker than it was a decade ago.

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The third change is in vacationer habits. A tour operator can still offer a package where everything is done: travel, accommodation, transfers, tours and so on. That is the same proposition Thomas Cook made a century and a half ago: you don’t need to worry about going to a strange and distant land, because we will fix all the details. But now anyone with access to the internet has similar information as the tour operator, and can figure out the details for themselves. There is a loss of convenience, but this is compensated by a big increase in flexibility. Many of us now are not able to fix holiday dates months in advance. Work patterns are different, more people are self-employed, and family circumstances more complex. We can find out the best hotel deals in a few minutes; we don’t need Thomas Cook to tell us.

And we certainly don’t need Thomas Cook if it’s going to leave us stranded in some foreign city. That is the final sad twist to this sad tale. All businesses trade on reputation, but reputation is especially important in a business where you pay money upfront and receive the service months later. In the case of Thomas Cook, a brand that took more than 150 years to build up and survived all sorts of battering, that reputation has been destroyed in a matter of days. Though the people who are worrying about how they will get home, or what will happen to the holiday they have booked, will be compensated one way or another.

Maybe the business will be saved – indeed, I hope it will – but I very much doubt many people will want to book with Thomas Cook again if it is.

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