Commercial property Thomas Cook shares fell more than 70% on Tuesday 22nd November, after announcing it was seeking a new £100m loan from a syndicate of banks to help the company, and in particular during the slow winter trading period.
The 170-year-old commercial property company turned to the banks only 4 weeks ago, in which the banks agreed a £100m loan to avoid binding agreements being breached. The company has turned to its syndicate of 17 banks for more financial help following a fall in trade due to the unrest in North Africa-a popular destination with holidaymakers from key markets in France and Russia and weak consumer confidence.
The commercial property company, started selling British railway excursions back in 1841, and are now Europe’s second largest tour operator, selling more than 22 million holidays a year in the UK. The commercial property tour operator employs 2,000 people in Peterborough and 31,000 worldwide.
However when booking holidays online was growing, Thomas cook was spending large amounts of money over many years merging with high street travel outfits in Britain and Europe. In August this year, the company merged with the Co-operative Group, adding another 460 shops to its portfolio. Wyn Ellis at Numis Securities said: “The group focused too much on the commodity end of the business and didn’t develop its internet business sufficiently.”
The group’s shares partially recovered on Wednesday 23rd, rising 20%, however the price is still 93% lower than it was at the start of the year, making the company worth around £107m.
The Bretton-based commercial property holiday operator delayed publication of full-year results until it seeks approval from its banks for new funding.
Thomas Cook has reassured customers that holiday bookings were fully protected.
The tour operator group is now working on a new approach for the frail British market and is also replacing its bosses for a second time. The group is looking for a successor to the interim Chief Executive, Sam Weihagen. Michael Beckett, the group’s Chairman will be replaced by Frank Meysman, when he steps down on December 1st. Mr Meysman, is a former boss at Sara Lee, maker of instant coffee and corn dogs.
The company said it is looking to support itself through the months of December and January, even though it is the toughest time of the year for the business.
One of the 12 syndicate banks said there was no appetite for the lenders to take possession of the problematic tour operator.
A person close to the talks said: “We want to play it quite softly”.
Prime Minister David Cameron said on Wednesday the health of: “An iconic and important British business was a concern.”
A Conservative MP asked Mr Cameron if he would support: “This great British institution”. Mr Cameron replied: “I’ve obviously asked the business department to give me a report on what is happening in terms of Thomas Cook, because I think it is important to make sure this business is in a good, healthy state.”
Despite Mr Cameron’s public concern, the government does not have the urgency to become heavily involved in the fate of Thomas Cook.
The commercial property tour operator announced its French and Belgium markets have seen bookings fall by up to 20%.
TUI Travel, Europe’s leading tour operator which owns the First Choice and Thomson chains rose 13% to 15.4p, as analysts turned their interest to the possible benefits from the Thomas Cook crisis for its rival.
Nick Batram of Peel Hunt said: “Whatever path Thomas Cook follows out of its woes, it is likely to involve some form of shrinkage. He further added: “This should take capacity out of the UK and some other markets. In the UK, the most likely beneficiary will be TUI Travel.”
James Ainley at Citigroup said it was highly likely that there will be weak booking trends at Thomas Cook, which will continue into next summer. He stated: “Given the bad publicity that will flow from the announcement, we assume that consumers and suppliers could become increasingly reluctant to deal with the group, potentially exacerbating the situation.”
Michelle Baldwin, a recruitment consultant, who was window shopping at a Thomas Cook branch in Moorgate, London, told Reuters: “People will be put off dealing with Thomas Cook. People will want to go with a company that is not associated with bad news, even though they will have protection. They feel safer that way.”
Interim chief executive Sam Weihagen was adamant the company was a “robust business that has a great future.”
He further added: “We’re operating business as usual. Flights are leaving on schedule, shops are open and we’re taking bookings. Thomas Cook is a very strong company and we are trading in a robust and prudent way and there is no reason why that should not continue. I am confident that our bankers will support us.”
Mr Weihagen said the group was looking at areas of the business that were not essential to its operations and which could be sold to help the struggling tour operator.
It has been reported that the group is considering closing 200 of its outlets after its merger with the Co-op’s UK high street travel business.
What is next for the troubled commercial property tour operator? For now Thomas Cook is too big to fail. If the company was to go bust then the Civil Aviation Authority, which acts as travel operator’s insurer as a last way out would also go under. The bankers are likely to give the group another lease of life, however this maybe the last.
Separately, those who have purchased any of the 300,000 Olympic tickets from the travel agent, which is an official Olympic sponsor, can stop worrying.
Locog says it will allow those who purchased tickets from the package to still use them if the tour operator goes under. The packages are also covered by the travel agent collective ABTA’s bond.
A company spokesman for the tour operator said: “We can appreciate our customers’ concern but we are confident we will not go bust and it is business as usual.”
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