Analysis: What brought down Thomas Cook?

Market research firm Mintel considers what went wrong and who might benefit

The UK travel industry lost its third-largest package holiday provider when Thomas Cook ceased trading in September.

But Thomas Cook’s collapse should not be confused with the demise of the package holiday market.

The volume of overseas package holidays taken by UK residents continues to grow year on year, albeit at a slower pace than pre-referendum levels. The number of overseas package holidays taken grew by 19% between 2013 and 2018, according to Office for National Statistics figures.

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Mintel predicts the package-holiday market volume will grow by 1.4% in 2019, whereas the number of independently booked holidays will decline by 0.5%.

Package-holiday providers are benefitting from the financial protection offered as Brexit uncertainties instil cautious behaviour among travellers.

Why did Thomas Cook collapse? It clearly suffered from rising competition in the package holiday segment. Thomas Cook lost out to its rivals.

While the market grew, the number of authorised passengers Thomas Cook licensed under Atol protection declined by 36.7% in the period February 2015 to April 2019.

Leading package-holiday providers Tui and Jet2holidays registered increases of 22.3% and 216.7% respectively over the same period.

Mintel’s brand research shows that in April 2019 Thomas Cook was still perceived as having a good reputation and being reliable despite the difficult financial year it had in 2018.

However, Thomas Cook lacked clear differentiation in the market. It was not seen as particularly innovative or cutting edge, or as offering good value.

Experience rates and recommendation levels among its customers remained well behind its nearest competitors:

16% of Thomas Cook customers rated their satisfaction with the brand as ‘excellent’ compared with 34% for Virgin Holidays, 25% for Jet2holidays and 21% for TUI.

Thomas Cook aimed to address these issues by trying to increase loyalty among customers and attracting new people to the brand, but unfortunately it didn’t adapt fast enough.

Package-holiday providers will fight for Cook’s market share

Trusted brands that offer good value for money on top of a seamless booking experience are likely to benefit from Cook’s collapse.

Tui and Jet2holidays both look well-positioned to increase market share. Tui is more likely to persuade those looking for a well-known, good quality travel company they can rely on.

Gaining traveller’s trust is a key theme for the travel industry amid Brexit uncertainties. 43% of holidaymakers said uncertainties around Brexit made them more cautious about booking holidays in February 2019.

Thomas Cook’s collapse is likely to have increased levels of concern. However, holidaymakers could become more sceptical. If a brand the size and age of Thomas Cook can collapse, some may think ‘Who can I trust my holiday to?’

Jet2holidays is likely to appeal to former Cook customers who are predominantly price and service driven. 47% of committed Thomas Cook customers associate Jet2holidays with offering good value compared to 36% for TUI.

Exceeding customer expectations on service is a focus for Jet2. For example, the brand expanded its Free Resort Flight Check-in Service late last year. This allows guests to hand over luggage to a check-in team at their hotel on the day of departure.

Offering a seamless booking experience is another essential ingredient for those looking to benefit from Cook’s collapse.

EasyJet has high growth ambitions in the package holiday market and is expected to launch its revamped holiday offering in late 2019. The company plans to apply data-driven customisation to its website to boost its appeal.

The domestic holiday market is also expected to prosper amid Brexit uncertainties and rising price levels.

The low value of the pound had already made more consumers decide to take a staycation in 2019 and Thomas Cook’s collapse will impact price levels until extra capacity has been added to the market.

The number of domestic holidays will surge (see the upcoming Mintel Report: Domestic Tourism – UK, October 2019).

Package holiday providers should prioritise flexibility

Although Mintel expects the package holiday market to grow, independently booked holidays are likely to grow at a faster pace once the uncertainty has lifted.

Travellers’ growing need to customise holidays requires brands to be flexible and offer choice. Package holidays and all-inclusive resorts are much less associated with these aspects.

To prevent losing more market share to the independent segment, package holiday providers should explore possibilities to give travellers greater control over holiday elements.

What it means:

  • Package-holiday providers should adapt to rising demand for flexibility and customisation.
  • Tui and Jet2 are likely to be among the brands to increase their share of the market. EasyJet is one to watch ahead of the launch of its revamped holiday business.
  • The domestic holiday market is expected to prosper amid Brexit uncertainties and rising price levels for overseas holidays.

For more information, see the Mintel Reports: Package vs Independent Holidays (UK, April 2019); and Holiday Planning and Booking Process (UK, May 2019).

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Comment: Unanswered questions remain over Thomas Cook

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