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Explainer: How did Thomas Cook go under?

Prime Minister Boris Johnson said bailing out the company, which employed 22,000 people globally, would set up a “moral hazard”.
Sep 23rd 2019, 2:28 PM 25,826 26

BRITISH TRAVEL GROUP Thomas Cook has declared bankruptcy today, leaving 22,000 global employees – 9,000 of whom are in Britain – without a job.

The operator had been seeking £200 million from private investors in order to avoid a collapse.

Now more than 600,000 tourists are stranded worldwide, including more than 150,000 holidaymakers seeking to return to Britain.

How did it happen?

The operator, which closed its one office in Dublin back in 2014, experienced difficulties for several years but the situation deteriorated in recent months.

The group announced a loss of £1.5 billion in the first half of the year due to the competition from online travel and also the tremors caused by Brexit, which it said had led to potential tourists delaying travel plans amid the uncertainty.

The weak pound also reduced the purchasing power of British holidaymakers abroad.

The setbacks caused its stock price to fall in recent months, plummeting to just a few pence.

Fosun, the Chinese owner of Club Med, was Thomas Cook’s largest shareholder, owning around 17% of its capital.

The Chinese firm had planned to take over the British group’s tours business as part of a £900 million refinancing package, of which it would have contributed half.

However creditors were later asked for a further £200 million to refinance the tour operator, arguing that it would not be sustainable otherwise.

Creditors, executives and shareholders were locked in a series of meetings from Friday to try to release pension funds, secure a government bailout or cut the £200 million sum.

These attempts failed and the travel giant declared bankruptcy early this morning.

In a statement it said that “despite considerable efforts” it was unable to reach an agreement between stakeholders and proposed new money providers.

“The company’s board has therefore concluded that it had no choice but to take steps to enter into compulsory liquidation with immediate effect,” it added.

Why didn’t the UK government bail the company out?

Prime Minister Boris Johnson said bailing out the company would have involved “a lot of taxpayers’ money” and set up a “moral hazard” in future cases of commercial difficulty faced by British firms.

“It is a very difficult situation and obviously our thoughts are very much with the customers of Thomas Cook,” Johnson told reporters en route to the UN General Assembly in New York.

“We will do our level best to get them home.”

What happens next?

The last Thomas Cook flight landed in Manchester just before 9am today. 

Hundreds of thousands of passengers are now stranded, with many reporting prices for flights home with other airlines rising rapidly. As many as 4,500 Irish passengers are believed to be impacted. 

The British government has already begun sending planes to bring British holidaymakers home as close as possible to their planned return date.

insolvency-thomas-cook-holidaymaker-on-mallorca British government employees giving information to passengers at Palma de Mallorca airport. Source: PA

Many British customers’ holidays are protected by a Civil Aviation Authority scheme called Atol (Air Travel Organisers’ Licensing). 

This means they will receive a refund for cancelled flights or accommodation, but this could take a number of weeks. 

Irish passengers who booked a Thomas Cook package through an Irish travel agent should also be covered by this scheme. Irish holidaymakers who are still abroad will be able to avail of the repatriation flights to the UK as they would have flown through the UK initially. 

The Turkish government has pledged to support local businesses affected by the collapse of Thomas Cook, with more than 21,000 of its customers currently in the country. The tourism ministry said a credit support package is being developed to help these businesses.

The ministry also warned hotels that they would be prosecuted if they demanded payment from tourists or evicted them from their rooms due to the Thomas Cook collapse. 

Cyprus’ deputy tourism minister Savvas Perdios also said the government had informed the hotel sector to make sure it offers “services which are included in the package rate of Thomas Cook to the customers”. 

spain-britain-thomas-cook Thomas Cook staff give information to British passengers at Palma de Mallorca airport. Source: Francisco Ubilla

As for the operator’s staff, some have turned up at airports and outside closed Thomas Cook stores to help, even though they are no longer being paid.

Support packages are reportedly in place for employees, but the scale of this support is unclear. 

The British Airline Pilots’ Association said while detailed plans to repatriate passengers have been carefully put together, the staff have been “stabbed in the back without a second’s thought”.

“Despite continuing to keep Thomas Cook going in recent weeks with dignity and integrity while their own futures were being secretly decided we don’t even know if staff will get a pay cheque this month.

It is despicable. Thomas Cook pilots and all staff deserve better than this.

“For pilots, BALPA will be supporting our members through the legal complexities of what Thomas Cook liquidation means for them and doing everything we can to help them find alternative jobs in other airlines.”

- With reporting from AFP.

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Michelle Hennessy

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