Author: James Hearn
The largest travel company in the world, Thomas Cook, collapsed earlier last week. Suddenly 21,000 people found that they didn’t have a job and over 9,000 of those jobs were in the UK. Over 150,000 British customers were on holiday when Thomas Cook collapsed creating a need for the biggest ever repatriation of people since the Second World War. The Civil Aviation Authority is chartering over 1,000 flights to get everyone home.
It’s really a mess. It’s a tragic situation for all those losing their job so close to the Christmas holiday season and also for all the customers who saved hard for a holiday, paid their money, and are now unsure if they will ever see a refund or not. Some of the customers presently on their holiday are finding that hotels are demanding cash directly from the customer – because the hotels are not expecting Thomas Cook to pay them anything now.
People are still being returned home so this is a live news story as I’m writing this article, but it is clear to me that there were three main causes for this collapse. Analysts might attribute more weight to different events or issues, but I think this summarises the situation:
- Too much debt; there are already rumours of a £3bn debt black hole that Thomas Cook was servicing. Financial analysts report that most of the debt problems started after the merger with MyTravel in 2007, but this was over a decade ago. The management team really should have resolved the issue by now, but clearly it remained a drag on the business year after year.
- No investment in the future; with the need to pay down debt being a constant focus of the business there was never any focus on innovation and the travel market has changed dramatically in the past decade. Thomas Cook doesn’t appear to have embraced smartphones, review sites, or anything that modern travellers use to research and book their travel.
- Death of package holidays; it’s true that independent bookings are now much more popular because it’s so easy to research flight and hotel options online. Millennials tend to have a higher expectation from a holiday than just a sun lounger by a pool and yet many of the Thomas Cook products were still basically just a flight and hotel in the sun – and still marketed using print brochures in High Street travel agents. However, there are other companies in the sector, like TUI, that appear to be evolving their package holidays to suit modern travellers so I think it was less about the death of package holidays entirely and more about the tired product on offer at Thomas Cook.
I think there are two enormous trends in travel at present that Thomas Cook ignored and others in the sector should be focused on. The first is a trend towards travel focused on experiences rather than just lounging by the pool. Experiences were the biggest growth area for bookings on Tripadvisor last year, growing 47% - this includes tours and tickets, but also restaurant bookings. Customers are booking travel, but spending just as much on tickets, tours, and restaurants as they are on hotels. Why should travel agents leave that money on the table?
Personalization is the other big trend. In the past it was argued that online travel agents couldn’t offer a great customer experience – they just offer cheap flights. To get personal service you needed to visit a real travel agent and talk to a travel advisor. Now the online travel companies like Expedia are all exploring how Machine Learning can gather data on exactly what customers want – what they book and browse - and Artificial Intelligence (AI) can analyse all that data. If your travel company knows exactly what you like then it can automatically offer the best advice on future travel – all powered by AI. The High Street cannot compete with this insight.
Thomas Cook faced several problems all at the same time, but I think this failure to change is ultimately why the company collapsed. Customer data gives insight and modern travel customers expect travel companies to know what they like.