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Lessons from Thomas Cook’s collapse, By Emmanuel Onwubiko

By News Express on 14/10/2019

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The phenomenal fall from grace to grass of one of Europe’s best known travel agencies, known as Thomas Cook, can be compared with the fall of a giant. Thomas Cook is the second largest tour operator in Europe, just after TUI AG Worldwide, which generated revenue of around 19.52 billion Euros during the fiscal year ending September 30, 2018, according to a source called STATISTA. 

Perhaps, the liquidation of this iconic British company with a proud history can be likened to the defeat of Goliath by David in the Old Testament. I chose to compare the collapse with the fall of Goliath by David because of the strong history of global best practices that had trailed this company before it snowballed into a badly managed business concern. In my many years of travels to the United Kingdom spanning nearly two decades, i actually perceived Thomas Cook as a national asset of Great Britain, until the bubble burst earlier this week: About 600,000 tourists of the company were reportedly left stranded across the world, with Tunisia announcing that Thomas Cook owes it $60 million; while 22,000 employees have been thrown into the Labour market.

The fall of this giant compelled this writer to ask questions about how, in Nigeria, so many companies had collapsed, especially in the banking industry. But there was this void regarding paying off depositors who lost huge amounts of cash in the collapsed banking institutions numbering over 40 in the 1990s. These, I will endeavour to reel out towards the end of this piece. We will also ask the Nigerian government to learn from the British government how to care for her citizens whenever private firms collapse, leaving customers who are citizens in terrible circumstances.

This iconic British company called Thomas Cook, founded by Thomas Cook - 22 November 1808-18th July 1892 – as compiled by Europe-based Reuters.

“In 1841, Thomas Cook organised his first excursion, a rail journey from Leicester in central England to the neighbouring town of Loughborough. A special train carries some 500 passengers a distance of 12 miles and back for a temperance (anti-alcohol) meeting. In 1855 - Thomas Cook’s first continental tour. He takes two parties from the eastern English port of Harwich to Antwerp, then to Brussels, Cologne, Heidelberg, Strasbourg and, finally, to Paris for the International Exhibition. Cook offers a complete holiday ‘package’ (comprising travel, accommodation and food) for the first time. Thomas also offers a foreign exchange service for the first time. 1865 – Thomas Cook opens his first high-street shop in Fleet Street, London.

1874 – Thomas Cook launches ‘Cook’s Circular Note’, a precursor of the Travelers’ check, in New York. 1919 – Thomas Cook & Son, as the company was then known, is the first travel agent in Britain to advertise pleasure trips by air.

“In 1948 - Becomes state-owned under the British Transport Holding Company. 1972 – Privatized and bought by a consortium of Britain’s Midland Bank, Trust House Forte and the Automobile Association. 1990 – Thomas Cook becomes the world’s leading foreign exchange retailer when it acquires the retail foreign exchange operations of Deak International.

“September 2019 – Thomas Cook seeks an additional 200 million pounds to see the company through the winter season when business is slow. Sept. 22, 2019 – Thomas Cook executives meet lenders and creditors in London to try to thrash out a last-ditch deal to keep the company afloat. Sept. 23, 2019 – Thomas Cook announces collapse after it failed to secure a rescue package. CEO issues apology.”

So going through these illustrious trajectories as captured by Reuters, an observer is left asking to know what really went wrong. Was the company badly managed or has it outlived its relevance?

A commentator was quick to state that it's been a long journey for the travel firm, Thomas Cook, since its formation in rural Leicestershire during the early Victorian era.

As reported, the firm’s fate was sealed by a number of factors: financial, social and even meteorological, including stiff competition from online travel agents and low-cost airlines. There were other disruptive factors, such as political unrests around the world, so reports experts with considerable focus on operations of tour companies.

The writer says also that in addition, many holidaymakers had become used to putting together their own holidays and not using travel agents. This explains the difficulty the firm witnessed just before it collapsed as it couldn’t be bailed out: which means that the century-old business model is no longer profitable.

As recorded by business reporters last summer, shares of Thomas Cook were trading at just below 150 pence. But after a series of profit warnings, the price had fallen to just a fraction of that. Earlier this year, analysts at Citigroup Bank described the travel firm’s shares as “worthless”.

The downward trends continued even as it was stated that in May, Thomas Cook reported a £1.5 billion loss for the first half of its financial year; with £1.1 billion of the loss caused by the decision to write down the value of My Travel, the business it merged with in 2007.

Added to these is the fact that it warned of “further headwinds” for the rest of the year, and said, there was “now little doubt” that Brexit had caused customers to delay their summer holiday plans. The egg-heads in this company, realising the inevitable fate that may befall it, started to figure out possible bail-out options; which never worked, any way.

The reporters said that when it was becoming clear that it won’t survive for too long under its former identity, the company then put its airline up for sale in an attempt to raise badly-needed funds.

Thomas Cook later announced it was in advanced talks with its banks and largest shareholder, China’s Fosun.

The troubled operator was said to have hoped to seal a rescue led by Fosun, but the creditor banks issued a last-minute demand that the travel company find an extra £200 million, which it was unable to do.

The company’s boss, Peter Fankhauser, said the firm had “worked exhaustively” to salvage the rescue package and it was “deeply distressing” that it could not be saved.

For Thomas Cook’s unfortunate staff, customers and shareholders, history has come full circle, so concludes a financial analyst who sounded apocalyptic. 

Observers were quick to remind us that eight years ago, the company lurched perilously close to the edge of insolvency after trading turned sour. It was pulled back from the brink by an emergency loan from a group of banks, led by Royal Bank of Scotland – ironically, the same bank whose demand for extra money appears to have sunk the company this time.

Besides weak trading, the company’s big problem in 2011 was too much debt – about £2 billion when the pension deficit was included. It tried to put its borrowing problem behind it in 2013, with a £425 million fundraising from shareholders.

Fast forward six years, and Thomas Cook is back where it was, according to observers, with considerable knowledge about the travel operating industry in Europe.

An interesting dimension of how some business analysts saw it all was when one of these experts wrote: “All the rescue money is gone and the debt pile is back to £1.6 billon. Again, it has been thumped by poor trading and a series of one-offs, notably weak sterling and a summer heat-wave that led to a downturn in demand.

“But there is evidence of deeper problems, as well as a lack of management control. The company stopped paying dividends to shareholders in 2011...”

However, one lesson which companies in Nigeria should learn is to always provide a fall-back position for their clients in times of emergencies. For instance, Thomas Cook’s packaged holiday share of the market has remained broadly unchanged.

One reason for this is that most air package holidays sold by travel companies based in the UK have ATOL protection.

This protection means that if the business collapses while travellers are away on holiday, they will be able to finish their trips and then travel home.

If a business folds before someone’s trip, the scheme will provide a refund or replacement holiday. So, why did British Government not bail out this iconic company and save thousands of jobs?

This probing question is imperative because, as reported, a row broke out over what could have been done to prevent the collapse of Thomas Cook, as Boris Johnson defended his refusal to order a bail-out of the travel company while Labour said there should have been a state-backed rescue package.

Warning that state intervention risked creating a “moral hazard” in future cases of companies on the brink, the prime minister hinted at possible government action against directors of travel firms who oversaw bankruptcies.

In the wake of the collapse of the budget airline, Monarch, and now of Thomas Cook, he said it was time to “reflect on whether the directors of these companies are properly incentivised to sort such matters out.”

British media reports that despite coming under fire from Labour and the unions for failing to step in to save the collapsed tour operator, the premier said it did not seem the government could have done more to help, for example, by agreeing to Thomas Cook’s request for a £150 million bail-out.

On the request for government funding, he told reporters on his plane while en route to the UN General Assembly in New York: “Clearly, that’s a lot of taxpayers’ money and sets up, as people will appreciate, a moral hazard in the case of future such commercial difficulties that companies face.”

The media observed that the Thomas Cook affair has laid bare differences in approaches between the Tories and Labour towards state intervention, with the shadow chancellor, John McDonnell, blaming the government’s “ideological bias” for its decision not to intervene.

“The government’s intervention could have enabled us to just stabilise the situation, give a breathing space so that there could be proper consultation with the workforce in particular about how to go forward,” he told the BBC.

“To just stand to one side and watch this number of jobs go and so many holidaymakers have their holiday ruined, I just don’t think that’s wise government.”

Rebecca Long-Bailey, the shadow Business Secretary, described the government’s position as “reckless” and said it should have stepped in to take an equity stake.

The refusal to intervene was also condemned by trade unions, who insisted the cost of bringing stranded Thomas Cook customers home from holidays abroad would dwarf the amount of taxpayer-support requested by the firm.

“You don’t have to be a mathematical genius to know it would have been cheaper and more cost-effective to save what is a cornerstone of the British high street,” said Manuel Cortes, the general secretary of the Transport Salaried Staffs’ Association.

The Unite General Secretary Len McCluskey, said the government’s “do nothing” attitude “had left workers and customers high and dry, while landing taxpayers with a bill of hundreds of millions of pounds.”

As gathered by my background research for this piece, a round of morning media interviews was staged by the Transport Secretary Grant Shapps, who said the operation to repatriate customers would cost £100 million, less than the sum requested by Thomas Cook.

“The company was asking for up to £250 million, they needed about £900 million on top of that, and they have got debts of £1.7 billion. So, the idea of just spending taxpayers’ money on that just wasn’t really a goer,” he told ITV’s Good Morning Britain.

“I think the problem of putting money into it, apart from the fact governments don’t usually go around investing in travel companies, is that it may have just stretched things out for a couple of weeks and we could have been exactly where we started.”

Before anyone in Nigeria thinks that what has happened to Thomas Cook has never happened, here is a list of closed financial institutions under liquidation, numbering 40 in Nigeria, with names of bank under liquidation and date of closure: Abacus Merchant Bank Ltd (Jan. 16, 1998); ABC Merchant Bank Ltd (Jan 16, 1998); African Express Bank Ltd (Jan 16, 2006); Allied Bank of Nigeria Plc (Jan 16, 1998); Allstates Trust Bank Plc (Jan 16, 1998); Alpha Merchant Bank Plc (Sept 08, 1994);  Amicable Bank of Nigeria Plc. (Jan 16, 1998); Assurance Bank of Nigeria Plc   Jan 16, 2006; Century Merchant Bank Ltd. Jan 16, 1998; City Express Bank Plc (Jan 16, 2006); Commerce Bank Plc (Jan 16, 1998); Commercial Trust Bank Ltd (Jan 16, 1998); Continental Merchant Bank Plc (Jan 16, 1998); Coop & Commerce Bank Plc (Jan 16, 1998).

Others were: Credite Bank Nig Ltd (Jan 16, 1998); Crown Merchant Bank Ltd (Jan 16, 1998); Financial Merchant Bank Ltd (Jan 21, 1994); Great Merchant Bank Ltd (Jan 16, 1998); Group Merchant Bank Ltd (Jan 16, 1998); Gulf Bank Ltd (Jan 16, 2006); Hallmark Bank Plc (Jan 16, 2006); Highland Bank of Nig Plc (Jan 16, 1998); ICON Ltd (Merchant Bankers)    (Jan 16, 1998); Ivory Merchant Bank Ltd (Dec 22, 2000); Kapital Merchant Bank Ltd (Jan 21, 1994); Lead Bank Plc (Jan 16, 2006); Lobi Bank of Nig Ltd (Jan 16, 1998); Mercantile Bank of Nig Plc (Jan 16, 1998); Merchant Bank of Africa Ltd (Jan 16, 1998); Metropolitan Bank Ltd (Jan 16, 2006); Nigeria Merchant Bank Ltd (Jan 16, 1998); North-South Bank Nig Plc (Jan 16, 1998); Pan African Bank Ltd (Jan 16, 1998); Pinnacle Commercial Bank Ltd (Jan 16, 1998); Premier Commercial Bank Ltd (Dec 22, 2000); Prime Merchant Bank Ltd (Jan 16, 1998); Progress Bank Ltd (Jan 16, 1998); Republic Bank Ltd (June 29, 1995); Rims Merchant Bank Ltd (Dec 22, 2000); Royal Merchant Bank Ltd (Jan 16, 1998); Trade Bank Plc (Jan 16, 2006); United Commercial Bank Ltd (Sept 8, 1994); Victory Merchant Bank Ltd (Jan 16, 1998); Eagle Bank Plc (Jan 16, 2006); Liberty Bank Plc  (Jan 16, 2006).

The above list of closed financial institutions, according to Nigerian government sources, does not contain the names of these banks whose licences were revoked by the Central Bank of Nigeria, but the Federal High Court is yet to issue winding up orders and appoint the corporation as liquidator for the banks. Due to court actions instituted by some of the closed banks’ shareholders challenging the revocation of their banks’ licences, the corporation was unable to conclude the closing exercise and initiate the payment of deposits to depositors of the banks.

To view the record of court proceedings for such closed banks, go to litigation under Legal Matters/Regulations.

Nigeria should continue to strengthen the regulatory legal frameworks that would guide against such a catastrophic event of a collapse of a behemoth which, if it happens in Nigeria, would constitute a monumental challenge. Look at the xenophobic violence against other black non-South Africans, especially Nigerians living in South African townships: It took the generosity of a private businessman, Allen Onyema of Air Peace Airline, to fly back hundreds of Nigerians. Today in Britain, the British government has intervened in a big way to bring back her stranded citizens who were affected by the collapse of Thomas Cook. Nigerian government should borrow a positive leaf from the British government and prioritise the wellbeing of the Nigerian citizen over and above any other considerations, irrespective of ethnicity, politics and cultural affiliations. The wellbeing of the citizens marks a sovereign entity as good and qualitative.

Source News Express

Posted 14/10/2019 11:32:50 AM

 

 

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