Why Thomas Cook Collapsed
citylab.com
citylab.com
The real problem was that the holidays they were selling weren't making Thomas Cook any profit. The holidays needed to be competitive against online travel agents with much lower wage costs. By booking with Thomas Cook, you could get an experience where there were more staff on hand to help you, but actually people didn't value this and hence weren't prepared to pay more.
The real nail in the coffin for Thomas Cook was their huge liabilities and huge concerns about their business viability so of course they were paying huge amounts of interest. Lenders were only lending to them on the hopes that they could collect enough interest rather than repayment. They were hoping that other parties (such as governments) would make cash injections such that they could profit. Everyone knew that eventually the debt would catch up with them, no one would want to be left holding the bag and the company would collapse.
The only reason Thomas Cook's balance sheet didn't look horrific was because they had assigned the brand a goodwill value of over £2.5 billion in 2018 which they wrote down to £1.4 billion after the first half of 2019. This was clearly a huge over-estimate as I doubt anyone will be paying much to purchase their brand now!
That's not what Goodwill is. Goodwill goes on the balance sheet when you acquire a company for more than book value.
But I assume they got the goodwill into their balance sheet by typical mismanagement:
1. Their markets are shrinking
2. Instead of shrinking company operations to adapt, they buy even less successful competitors for an overprice, so goodwill in the balance sheet
3. Not unsurprisingly integrating the not so successful competitor into the company is not so successful, employees are demotivated abd business suffers even more
4. Now a company with growing costs operating on a shrinking market gets even less profitable
I don't claim healthily shrinking a company to adapt to a shrinking market is easy. But I'm sure it must be doable. Looks like business management largely fails in this discipline.
Virtually every company will have a market value greater than their book value. So any company that buys other companies will have goodwill on their balance sheet. Google, for example, has 18 billion dollars worth from all of their various acquisitions.
Take a company like Nest for example. They had assets like patents, infrastructure, cash, accounts receivable, etc. If you add those all up and subtract their liabilities you get a book value of 100 million, as a totally made up number. Google comes along and buys them for 3.2 billion dollars. The transaction, from a book value perspective, has 3.2 billion in cash going out from Google and 100 million dollars of assets coming back. That looks like Google paid 3.2 billion for 100 million in assets, or in other words, just lost 3.1 billion dollars of value. To prevent that goodwill is added to the equation. The books have Google paying 3.2 billion dollars in cash for 100 million in assets and 3.1 billion in goodwill. Now Google paid 3.2 billion in cash for 3.2 billion in assets and it doesn't look like they lost value.
Doubling their high street shop network in 2016 seems to be sheer lunacy.
[1] For those who don't remember the reference, their IPO didn't go to plan: http://news.bbc.co.uk/1/hi/in_depth/business/2000/review/106...
Also images were much, much smaller, both in terms of pixels and amount of compression applied, using large images that weren't content was heavily discouraged, and no-one used auto playing videos. To the extent that sins against bandwidth were committed it was mostly with Flash, which we all complained about and which is now reviled, but which was in fact generally way less abusive, confusing, and performance-destroying, than what gets done now in the name of "modern UX". Pages were much smaller, devs were much more sensitive to markup bloat. The worst we had on that front were WYSYWG-made pages (Frontpage, for example) but they've got nothing on the kind of attribute bloat and huge JS payloads one sees now (and the JS in particular can keep on allocating memory after its text is loaded into memory then parsed into even more memory, with predictable results on resource use and page load times)
I had read how, when the 68000 came out originally, it was considered to be a "minicomputer on a chip", while the 68030 was anticipated to be a "mainframe on a chip".
So, I was unable to viscerally appreciate that perspective, until I ran the original MacPaint, which was extremely optimized for the 8MHz 68000 in the original Mac, and then I was amazed at how fast the 68030 was.
I had the Amiga, 68000 at 7.09 MHz (PAL, NTSC ran a teeny bit faster). Both Mac and Amiga gave fully featured, incredibly low latency GUIs. They might think a bit after the click, but compared to a modern GUI, oh so snappy.
Windows, OSX, X with whatever Windowing never get close to that instant tip of your fingers response. I miss low latency responses.
The Mac mouse pointer was always responsive due to interrupts, but that didn't mean that what you clicked on was.
However, the thing that I hate most about the modern web and similar UIs is that they reflow or otherwise move the content you are looking at after you click and before the click is mapped to an element, so you don't get what you click or tap on. This is absolutely unforgivable in my opinion, and absolutely not a matter of degree or grey areas unlike most of the things people complain about.
Took years after I abandoned the platform for serious use for Windows not to always be more sluggish, and get dramatically worse when under load. Course by then I was on '040 comparing with Pentium something.
I’ve read of paragraph long blogposts with 5MB photos resized down to thumbnails ️
Let's see, 2000. Most would be on dial-up, ADSL was either in very early roll out or pre-roll out hype - so nearly everyone waiting on exchanges to be converted. Techies probably had BT Highway, a dual 64k ISDN link. That always seemed really fast, and way faster than many of today's bloatware sites now feel. Insane page and JS weight with dozens of third party calls every page came later. Early broadband, before pages grew to over-compensate for that bandwidth was delightful!
Downloads and Dial up could feel sluggish, especially when you hit the sites being "clever and disruptive" with Macromedia Flash (not many yet), or a site that didn't know how to do thumbnails or image optimisation (quite a few. Usually pages with little 10x10 icons that were really 1024x768 images etc). :)
Cable internet (@home, Cox, or local provider like I had) was much faster than either of those and was available in a lot of places. I think I had a symmetric 1Mb/s, but would experience slowdowns during peak hours (nowhere near dialup).
But not in the UK, which is what the parent comment was about!
So no, it’simply not true that any Greek hotel will be left out of pocket from this.
If there were 600,000 TC tourists out in the beginning of this week, there is capacity for 600,000 tourists in 3 weeks, in 6 weeks and so on. Winter might always be a bit less busy, but it's obvious that economies in the holiday countries will lose a lot for many months to come. Much more than Britain or any of those companies where the tourists come from.
I'm not sure what the long term costs of "moral hazard" would be, but I've also never bought it as the bogey man some make it out to be. I simply don't think that many executives would steer their company in a direction that is more likely to lead to insolvency just because it might get bailed out. Not when it also means they lose their job in disgrace along with a lot less in compensation than they would have made if the company stayed solvent.
Which is to say that it is in fact costing the UK very much less than a bailout.
But honestly I don't know: I don't think there's an easy calculation here, and probably it's best for a country to take these things on a case by case basis. I think it's reasonable to not bail out TC, but I also think the alternative could have a rational basis as well.
Does it? Grant shapes (secretary of state for transport) said most of the money to sort this mess has come from the ATOL fund rather than tax. And if that doesn’t cover it then the money from asset stripping TC will be used to pay back customers.
So I’d be interested to know you've got that from.
https://www.thetimes.co.uk/article/taxpayer-faces-huge-bill-...
1. Monarch just flew EU. TC also does Cuba; Mauritius; Barbados, USA, India
2. Because of the 737MAX mess, there’s fewer available seats on other airlines and there just aren’t idle charter planes available.
All except 5 were leased from 38 different companies:
https://www.reuters.com/article/us-thomas-cook-grp-investmen...
Not likely, there'll be a line of higher priority creditors before them.
See for example: https://www.franciswilksandjones.co.uk/site/our_services/com...
(Customers being unsecured creditors.)
So the reason they collapsed is because their cost structure wasn't aligned to serve the volume of business they conducted.
Although they may have had 150k stranded customers it seems they were left with a low yielding segment selling products the market didn't need.
600K if you include people from other countries.
Does the UK have a reputation for generous vacation days? I never knew that - I thought it was pretty standard 28 days here.
The median number of vacation days for most categories of workers is about 15 (https://www.bls.gov/ncs/ebs/benefits/2017/ownership/private/...).
I'm actually surprised that many part time employees are given paid time off at all.
And there's the rub: it's expected over here.
28 days, though 8 of them can be the standard public holidays, leaving 20. It's pro rata for part time employees, and often given as cash to people on temporary contracts.
[1] https://en.wikipedia.org/wiki/List_of_minimum_annual_leave_b...
The reason? That most vilified of ideas: socialism.
Just like capitalism doesn't have to be Laissez-faire, business knows best, let them do what they want. So Socialism doesn't have to equal Communism.
The labour movements of which you speak, often formed political parties, in the UK that was the Labour party. Industries were nationalised, employment rights were given, the NHS was founded. Nevertheless the economy was fundamentally capitalist.
European countries are fundamentally social-democratic. Have a look at the etymology of that term.
20 days minimum + 8 days public holidays.
Further continuing to trade after your insolvent is a form of creditor preference. In most cases your customers become just another creditor upon bankruptcy. This is of course illegal.
Some would say the people who are in a foreign country and owed a flight home should be the highest priority creditors. And if operating a flight is the most efficient way to pay that debt....
In the case of this bankruptcy preferring customers would be changing the rules after the game had started. Even if you did it a bankruptcy judge would be in his rights to claw back the cost from the consumer.
Similarly when you eat at a restaurant and pay at the end the restaurant is providing you credit. Most people don't think of it this way because the transactions go smoothly and the distinction is irrelevant. But it does affect what rights you have if something were to go wrong.
There are perhaps cases where this is true, when purchases are informed the the sketchy financial state of the company in advance and have the information necessary to assume the risk. It is ridiculous to assert that regular customers, who are purchasing an Airline ticket in the standard way that almost every, has done due diligence and should be treated the same as creditors who are given detail financial information.
> Similarly when you eat at a restaurant and pay at the end the restaurant is providing you credit. Most people don't think of it this way because the transactions go smoothly and the distinction is irrelevant. But it does affect what rights you have if something were to go wrong.
I think most places consider "dine and dash" a crime. You go to jail for theft because it is not a loan. Do you know of any jurisdictions that actually treat this as a loan?
As for dine and dash there is a difference when there is no intent to pay. If somehow between when you ordered and when it came time to pay you declared bankruptcy then the resteraunt is SOL. The short timeframe just means its very unlikely you had intent to pay.
For bankrupt companies you will see attempts to limit future expenses (i.e. cancelling employee trips etc) but the fact that there is a continual stream of transactions makes it much messier. It is fraud if the company racks up large numbers of unusual expenses just before bankruptcy is declared.
It is the reasonable expectations that differ. Customers are not expected to ask for (and will not be granted) financial information or proof of collateral. It is completely unreasonable to give those customers the same level of risk as creditors who are expected to ask for (and receive) such information.
> It is fraud if the company racks up large numbers of unusual expenses just before bankruptcy is declared.
So when a company does not currently have the financial ability to fulfill a purchase (say without obtaining a government bailout), how is it not fraud to sell a product and collect money without informing the customer of that risk?
> As for dine and dash there is a difference when there is no intent to pay.
I'd like to see you try telling your waiter "I'm a bit tight on money right now, you'll have to wait for next month for me to pay my bill." Let's see if they call the cops and you get arrested. Your argument is rather ridiculous.
In the UK if you know that are you insolvent (and knowing that you are about to be insolvent is effectively the same thing as knowing that you are insolvent) then it's illegal to trade. Using your last bit of money to do something like fly people home is illegal - it would be defrauding other creditors who have higher priority to be paid off.
Having bankruptcy at all is an attempt at making a situation full of inherent conflict more orderly and less disruptive, so it isn't obvious why one must execute its provisions in a disruptive manner.
[1] https://en.wikipedia.org/wiki/Chapter_11,_Title_11,_United_S...
The CAA brings all the UK customers home as near to on schedule as possible under ATOL rules. Not sure how other nations play it out.
There was talk after Monarch's collapse a couple of years ago of permitting an exception in the insolvency rules. Specifically to allow the use of the collapsed group's aircraft and pilots. No more was every heard of it. But it was Chris "failing" Grayling as Transport Secretary, so hardly surprising the initiative failed.
As uncertain as UK governance and Chinese international trade relations have been recently, they might be excused for thinking anything could happen in the space of a month.
Many of those people aren't really stranded, they'll have their holiday as planned and the CAA will fly them home at the end of it
As new passengers aren't starting their holidays there's a rapidly decreasing number of people to fly back
Without that they could have shrunk or restructured.
https://www.theguardian.com/business/2019/sep/25/thomas-cook...
From that perspective, wouldn't you want to make a bankruptcy as messy as possible?
It's similar to, but even worse than a chapter 7 bankruptcy. I don't why their system is the way it is, but that's how it works.
If I hear that they were bought out by some vulture investment fund like Bain Capital/KKR a couple of years ago I won't be surprised at all.
Also, the UK handles bankruptcy very differently than does the US. You can't just continue to operate for months/years. This is why they paid into the fund which was created to insure against this exact issue for decades.
So, for the American context, think of what happened when ATA Airlines went bankrupt: 10k people were stranded, most of whom had to pay for new tickets to get home on an airline that hadn't declared bankruptcy with planes in the air.
Airlines focusing on the budget segment has been going out of business for years. Is Norwegian next in line?
If the European airlines keep going out of business we might see airlines from outside of Europe operating intra-Europe flights. Maybe an Emirates flight from Paris to Marseille or Qatar Airways flying Stockholm-Helsinki?
Foreign airlines aren't generally allowed to operate intra-EU flights (something Brexit is disrupting, many British planes have been registered elsewhere in the last year or two).
The management seem to do a good job of diverting attention from the debts but the company was seriously badly managed, it was only a matter of time before it went bump.
That's not to mention the 2006 Carbon Monoxide poisoning incident which meant people like me resolved never to use the company again.
The writers don't seem very good at maths. I think they mean 0.61 pounds to the Euro.
Also as to why they went bust the top comment on the previous discussion seems more telling to me https://news.ycombinator.com/item?id=21045550
I'm yet to speak to someone who doesn't look at me like I've got 3 heads when I mention this as a possible reason not to go abroad. I even mention our recent heat waves. Nope, doesn't register. Hot = abroad.
I mean, if there's data to say otherwise, I won't deny it. Just find it funny.
Global warming might be delivering "hot", but it hasn't been delivering "not raining". So this might be connected to the discrepancy you've noticed between the language of climate change, and people's opinions about the weather.
I've certainly spoken to people who've tried to tell me that increased rainfall is the reason why they don't believe global warming is occurring, presumably because: (a) they conflate warming with "good weather" (for some definition of good weather), and (b) they're not well acquainted with how the water gets up in to the sky in the first place.
I've found an inverse correlation between supposed touristyness and what I actually enjoy, so I don't rule out those countries, but it's getting to the non touristy parts of those countries, when all the flights are to tourist destinations.
Looking at you, Gatwick Express.
so the majority who are not british are just stranded?
- get talked to like I'm a dog by TSA
- forced to wait hours in lines to get through security
- violated by being forced to remove my belt and shoes