Comment: Some key Thomas Cook questions answered

The failure is the most complex the regulator and industry have had to handle. Ian Taylor explains

Why has it been such a difficult failure to deal with?

There have been widespread complaints in the sector about the speed at which Thomas Cook customer booking information became available.

The frustration is understandable. There are at least four reasons for the difficulties – the scale of the failure, the fact that it was a liquidation, the number and dispersal of Thomas Cook’s systems, and the fact that it was vertically integrated group, meaning the failure took down a major agency chain, airline and tour operator.

The scale of the collapse is self-evident.

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Thomas Cook had so few assets at the point it failed that liquidation, not administration, was the only option. An administrator would have attempted to maintain part or all of the business as a going concern.

A source close to the process told Travel Weekly: “Where an administrator would want to get the systems up and running, none of that happened. There was no money. They shut down all the servers. There was no one to pay to leave them on.”

Chair of the CAA Dame Hutton confirmed the problem in accessing customer information. She told Travel Weekly in the second week of the repatriation: “Part of the problem is the dispersed nature of the Thomas Cook databases.

“Data is spread over more than 100 data-processing sites across Europe.”

The scale of the vertically integrated group added to the complexity. The same industry source noted: “Normally, if you lose a tour operator, you have an agency network to help.

“This is one of the first failures where we’ve lost a holiday company and lost the travel agencies – lost restoration of systems throughout.”

Why will most refunds fall to the Air Travel Trust fund?

The UK regulator the CAA moved this week from repatriating Thomas Cook customers overseas to processing refunds on forward bookings.

In previous failures, the CAA has asked whether consumers paid by credit card and then referred those consumers first to their card providers, which are liable to make refunds for undelivered goods or services under the Consumer Credit Act.

The card companies would then issue ‘chargebacks’ against third-party agencies or operators where these were involved in transactions.

In this instance, where Thomas Cook agencies sold Thomas Cook holidays, there is no entity to chargeback and there is no desire by the CAA or Abta to see chargebacks issued to third-party agents who sold Cook holidays.

A source explained: “Relatively few payments were booked and processed direct by the tour operator. Card chargebacks would be to the retailers, but there is no retailer to charge back.

“None of us want to see third-party agents hit by chargebacks that are not their responsibility. That should not be happening.”

Will Thomas Cook’s collapse trigger more failures?

It is “inevitable”, says the CAA. It’s “too early” to tell, says Abta.

Dame Deirdre Hutton, chair of the CAA, told Travel Weekly: “I’m sure there will be some failures.”

Abta chief executive Mark Tanzer was more circumspect, noting the collapse “will be felt by people who were selling through Thomas Cook shops, right through the supply chain. But as to how serious that is for individual companies, I can’t say. It’s too early.”

A senior industry source told Travel Weekly while the repatriation was underway: “I would not be surprised by failures around the edge. Some people are very exposed on flying this winter.

“[But] there is no evidence yet of anything deeper and more widespread.”

However, the same source warned: “If we get a rolling Brexit and add a general election on top, things could accumulate.”

Those at the risk in the trade fall broadly into two categories – third-party tour operators which sold through Thomas Cook shops and third-party agents which sold Thomas Cook holidays – although a third, suppliers, could also be hit.

The extent of tour operators’ exposure will depend on whether they extended credit to Thomas Cook – many clearly did – when settlements were made, what proportion of business went through Thomas Cook, what provision they made for a failure and the robustness or otherwise of their business.

How vulnerable third-party agents are will depend on how much Thomas Cook product they sold and how reliant they were on its business, whether they were among those which accepted low deposits and paid the balance to secure Cook bookings, and the robustness of their agency.

Some failures do, indeed, appear inevitable and are likely sooner rather than later.

One of the first to fail will be Thomas Cook’s ground handler at Manchester airport, Aviator, which is due to go into administration on October 22 with the loss of 350 jobs.

What is happening to staff?

John Hays’ agreement to purchase Thomas Cook’s 555 stores offers a lifeline to 2,500 Thomas Cook agency staff in the best news yet since the company’s collapse.

This does not mean all the shops will re-open and remain so, of course. But Hays has six months to reach agreement with landlords on leases and to assess the stores.

He has given every impression of intending to keep a majority going.

The BBC suggested about 30 former Thomas Cook stores ‘overlap’ with Hays Travel existing estate. The number is almost certainly higher.

Hays said the acquisition tripled the company’s number of outlets (Hays has 190 shops at present), which taken literally suggests he may retain nearer 400.

An estate of around 600 would surely make more sense, roughly matching the number of retail outlets which Thomas Cook and Tui spent a decade paring their estates to reach.

There is less concrete news for former Thomas Cook staff in other areas. Abta chairman Alistair Rowland told the association’s Travel Convention: “We’re seeing hundreds of experienced Thomas Cook staff take up new opportunities in other businesses.”

He also confirmed Abta had accredited two thirds of the former Freedom Travel and Future Travel members who operated their own businesses within Thomas Cook as now operating under other Abta-member businesses.

For remaining ex-Thomas Cook employees, the situation remains more uncertain despite a spate of recruitment offers.

Tui pledged to recruit 50 Thomas Cook Airline captains from among the carrier’s 500 pilots, for example, but the liquidation left 4,000 airline employees out of work.

However, there have been three other developments of note.

First, the liquidator made an interim pay-out totalling £18.4 million at the end of last week towards the wages and redundancy money owed almost 5,000 staff.

That leaves another 4,000 claims unprocessed. Further pay-outs are promised, although this first payment accounted for about 60% of the £31 million Thomas  Cook had in the bank at its liquidation.

Second, Abta Lifeline – the industry charity – launched a £100,000 appeal to aid those Thomas Cook staff in most need after receiving hundreds of requests for help.

Third, trade unions have launched legal action on behalf of Thomas Cook staff seeking payment for the redundancy notice period and redundancy payments they were denied by the liquidation.

None of this will make up for the sudden loss of jobs and pensions, often after many years of work, but the assistance may keep people in their homes while they seek alternative employment.

What payments can hotels expect?

Some mainstream media reports have suggested the Air Travel Trust could refund hoteliers for bills unpaid by Thomas Cook for accommodating customers in advance of the group’s collapse. This is mistaken.

Hotels will receive payment for all Atol-protected customers staying with them at the point Thomas Cook went into liquidation. However, they will lose out on payment for customers who completed their stay before that point.

Thomas Cook appears to have paid hotels up to around the end of June and some into July. But that leaves almost the whole of the peak summer bookings unpaid.

The bill could top £1 billion across hotels in 28 destinations.

One positive note is that hotels which hosted not only Thomas Cook UK customers, but also German or Nordic clients may only have lost the UK payments.

This is not yet entirely clear and would, in any case, still represent an enormous hit. The German operator is in bankruptcy protection, with plans to resume trading on December 1. However, the Nordic business is trading.

A second positive is that rival tour operators appear to be piling on capacity for next year and contracting with former Thomas Cook hotels.

However, hotels will see nothing of what they are owed from the liquidation process. It’s clear the group’s assets will barely cover what’s owed employees plus the cost of the liquidation.

MoreComment: Some key Thomas Cook questions answered

Comment: The aftermath and impact of Thomas Cook’s collapse

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