Thomas Cook is reassuring holidaymakers it is business as usual for its flights, hotels and travel agents after the debt-laden tour operator admitted it was in urgent talks with bankers to raise a further £100m – just a month after it last asked its lenders for £100m.
The holiday company, which was founded in 1841 and now provides 7 million breaks for British travellers every year, already owes nearly £1bn to lenders including 17 banks and its debt could top £1.5bn by the end of the year. Tthe value of the company plunged by 75% on the stock exchange making it worth just £87m. In a message on Twitter, the embattled tour operator said: "Thomas Cook reassures all customers it is business as usual. Our holidays are fully protected and can be booked with complete confidence."
Chief executive Sam Weihagen said: "We are as good and reliable today as we were yesterday. Flights are leaving as scheduled, shops are open for business." He added Thomas Cook was "pretty confident" the banks would again prove supportive.
The group is Europe's second largest tour company and operates almost 1,000 high street travel agencies in the UK. As well as its eponymous brand, Thomas Cook trades under many other names, including Going Places, 18-30, Cresta and Sunset. In recent years the package holiday industry has come under severe pressure. The traditional two week "flop and drop" Mediterranean holiday has been hit by cutthroat competition which has slashed margins. Meanwhile more adventurous, internet-savvy travellers have taken their business elsewhere and once-profitable sidelines such as travel insurance have also been lost to online rivals.
At the same time rising unemployment, petrol prices and gas and electricity bills have put pressure on family budgets. In the squeezed middle lie tour operators such as Thomas Cook, whose travel agency chains might soon join bookshops, record shops and bank branches as yet another high street victim of the internet and the recession.
On Tuesday the company said bookings in France and Belgium had dropped by 20% in the last few weeks as consumer confidence has been hit by turmoil in the eurozone. The continued political uncertainty in Egypt, one of Thomas Cook's longest established holiday destinations, has added to its problems, as have the floods in Thailand.
Industry insiders said Thomas Cook must decisively stamp out doubts about its financial health before the new year, typically the busiest time for summer holiday bookings. Chris Photi, a travel industry accountant and turnaround specialist at White Hart Associates, said: "By January this needs to be 'old news'. Right now, would I want to be booking a Thomas Cook summer holiday? No. I may be covered if the group went bust, but why would I put myself through that uncertainty?"
On Tuesday the company's shares, worth more than 200p at the turn of this year, were changing hands for just 10p.
The company's financial dire straits have led to a string of senior executive departures in recent months. Thomas Cook's colourful chief executive Manny Fontenla-Novoa left abruptly in August. Over the previous four years he had received pay totalling £14.5m in cash and shares.
Like most travel companies, Thomas Cook enjoys huge revenue inflows in the first half of the year as holidaymakers book their summer breaks, but the group must also manage sizeable outflows in the winter months when the bulk of flights and hotel arrangements must be paid for.
For Thomas Cook the UK has been the source of the most persistent problems in recent times. The group had been expected to detail radical plans this week to slash the range of holidays offered to British customers and reduce its 41-strong fleet of aircraft servicing the UK. That cost-cutting push is still planned, but the details, along with the company's annual results, have been postponed while urgent negotiations continue with bankers.
Five weeks ago Thomas Cook announced it had removed concerns that it could breach its borrowing agreements this winter after securing an additional £100m loan and looser lending terms from the banks.
The biggest travel group failure in recent years was XL Leisure in 2008, which left the taxpayer-backed Atol consumer protection scheme to fund a £27m repatriation and compensation bill for 85,000 holidaymakers. The scheme was £42m in deficit in March despite a recent increase in the levy from £1 to £2.50 that Atol takes from travel agents for every holiday booking.
There are fears that the organisation could be overwhelmed by the collapse of a major operator such as Thomas Cook. But an Atol spokesman said: "We have lines of credit agreed with our financial backers which can be drawn upon.
There is not going to be a situation where we cannot meet our obligations." Atol is ultimately guaranteed by the Department for Transport, although the spokesman said it did not envisage a situation where Atol would seek taxpayer support.
Nationalisation of a travel agency sounds far-fetched, but has a historical precedent. In 1948, Thomas Cook was nationalised as part of the British Transport Commission and stayed in public hands until 1972. It was offloaded to a consortium of Trust House Forte, Midland Bank and the Automobile Association after spending years in uneasy competition with new operators specialising in cheap package holidays to Spain.
