Thomas Cook – the oldest tour operator in the world was famous for its package holidays to more than 60 destinations – collapsed this week. The impact will be felt across Europe, as well as at several worldwide destinations.
In some of these countries – such as Spain, Greece and Turkey – there is a fear that tourist numbers could drop dramatically. Thomas Cook Airlines, the British airline subsidiary, has fallen victim to the group’s collapse, despite it being a profitable part of the company. The loss of the airline will reduce seats to key markets — just this year more than 1.3mn passengers have travelled to Spain on Thomas Cook Airlines.
Unlike the UK, Germany is considering issuing financial aid to Condor, the German airline of the Thomas Cook Group, after Thomas Cook declared bankruptcy. Condor has applied for a bridging loan from the federal government and is awaiting a response, with German media reporting the amount requested was €200m ($220m). The airline is still operating but has stopped taking bookings.
There is now real concern in countries that local businesses could be financially impacted by loss of tourism. The Gambia's government has held an emergency meeting over the collapse of Thomas Cook. There is concern that its collapse will heavily impact tourism which contributes more than 30% of the Gambia's GDP.
In Cyprus, the loss for hoteliers is around €50mn, according to Cyprus' deputy tourism minister. Thomas Cook owed money for July, August and September.
In India, Goa's Travel and Tourism Association said that the loss of Thomas Cook is a "big, big, blow to the industry."
In late-September, it’s not uncommon for overcrowded markets to lose financially fragile airlines. The cracks start to show in weaker players that may not have secured enough bookings for the upcoming winter period. Airline executives need to determine the amount of cash needed to carry the airline through the quieter winter period where demand lowers and they can struggle to break even.
For operators such as Thomas Cook, overcapacity was a mere contributor in a dated business model for a viciously competitive 2019. Competitors were not just low-cost airlines, but also full service airlines, online travel agencies, hotel booking sites, Air BnB, the list goes on.
The company was a victim of a disastrous merger in 2007, with soaring debts and an internet revolution in holiday booking. A Europe-wide heatwave in May 2018 reduced holiday demand sharply, as customers stayed in the UK. In 2019, Thomas Cook said British customers were postponing travel plans for the summer because of worsening uncertainty around Brexit.
Elsewhere in Europe, Adria Airways had to temporarily suspend its flights, as the airline attempts to secure emergency funds in order to continue flights beyond September. The likelihood of an injection of fresh capital is slim, and the airline now faces having its Air Operator’s Certificate (AOC) revoked, which would lead to a complete collapse.
Operationally, Adria Airways (a private company, not government owned) has been suffering for a very long time. Its fleet of jets and turboprops often face technical issues which result in multiple flight cancellations per day. Despite being a member of Star Alliance, which helps passengers flow from other member airlines onto Adria flights, the Slovenian carrier faces weak load factors throughout the winter season. Adria often has trouble achieving a 55% occupancy rate on its A319s. While their summer seasons are promising, the summer demand ends abruptly in September.
The Slovenian carrier faces fierce competition across the continent, but specifically from low-cost Eastern European giant Wizz Air — a very profitable airline group, dominating the air travel sector in the region. But even Wizz Air CEO József Váradi has warned that current cost pressures “could mean fares – and those in the wider industry – move up if the cost environment changes”.
*The author is an aviation analyst. Twitter handle: @AlexInAir
