The Thomas Cook affair has sent a huge ripple effect through the entire travel industry due to its sheer size and long history of operations. You wonder how a global behemoth, with 178 years of history, employing 21,000 people across 16 countries descended into such a sad demise.
Too Bad to Bail
It’s not like we haven’t been here before. Let’s just draw comparisons – and there are many – between the Thomas Cook story and the fall of US giant General Electric, the company that went from iconic American corporate and the reliable star of Wall Street to an oversized lumbering giant.
Recent reports reveal years of questionable deal-making and needless complexity. Jack Welch, the GE CEO from 1981 to 2001, built a super-business that owned everything, from a major bank to NBC. It was flying yet the business model was fundamentally flawed. It was overly complex, and it became clear that Welch’s shopping spree masked massive problems, and he got out just before its lack of strategic, long-term planning was exposed. By September last year the company racked up debts of $115bn and GE is now on bankruptcy watch.
Like GE, Thomas Cook went on an acquisition spree that favored quantity over quality: from MyTravel in 2007 to Hotels4U in 2008 and integrating its airline business in 2013. Debts spiraled out of control and the interest paid back on those huge sums was astronomical.
Add to this is the fact that Thomas Cook paid its executives far more than they were worth or indeed that the company could actually afford. In the last five years bosses were paid more than £20m, £8M of which went to CEO Peter Fankhauser alone. It’s easy to see how these corporations hemorrhage money, but how did the business models go so wrong and what can we learn from this?
Too Old School It Failed
Companies that continue to prosper continuously update and adapt their strategies. Clever corporate strategies are flexible, enabling action rather than constraining it. Thomas Cook carried on with a business model that combined high street retailing with hotel management, running an airline and a digital presence. It was a true omni-channel set-up but management failed to implement a strategy that made it all work together. It didn’t offer a wide range of inventory and it failed on the personalized experience. Instead it carried on offering the same service with limited choice to the consumer.
By comparison, EasyJet were quick to move following the recent strikes at BA and Ryanair. With the focus on its self-help initiatives, bookings increased and the airline is expected to announce pre- tax profits of £430M for the year to September. The thing is, they are not constrained by red tape, endless approvals and outdated practices. They monitor their markets closely and are able to respond quickly to market opportunities and customer demands.
Every business should take a step back and look internally at their own operations and objectives. Be clear on the problems you are solving. Thomas Cook went down the route of being a travel agent and airline operator at the same time. It didn’t work because travellers’ needs and expectations changed. Travellers wanted more choice and more transparency on price than their high street shops could offer and they want the same experience online as they get in the high street. The touch-points have to be the same and they have to be seamless. With Thomas Cook it didn’t happen.
Choice and Data
Relying on a trusted brand and the inventory they have is no longer enough. Travel businesses must also learn to use the customer data they have. Use the information to understand customer preferences which will enable you to refine your products and services and keep them in line with what your customers are looking for.
In Whose Complicity?
I wonder how closely Thomas Cook’s shareholders were following the company’s strategies, operations and financial health. Did auditors not catch the non-recurrent items? Did analysts not raise concerns over them? Did shareholders read public filings and vote? Shareholder activism might have been able to prevent this from happening.
Having said that, maybe all that is needed is basic values, honesty, and a burning passion to do business the right way. A management that is constantly checking how the business is performing, where the industry is heading, and what kind of innovation can boost return on investment.
Like GE, Thomas Cook is the latest in a long line of corporate disasters that date back to the dawn of time. Employees lose their jobs and their pensions and board members close ranks and cover up. One can’t help but wonder what it takes for a company to get up and running, and for a legendary behemoth to prolong its reign sustainably? I think hard work and humility are good starting points.
By Phan Le, CEO of VLeisure (www.vleisure.com)