The most historic group-founded 1841-all emblematic and benchmark for the global tourist industry of mass tourism and package holidays, Thomas Cook group, last week, officially declared bankruptcy.
It was the Thomas Cook group that “instituted” accessible for the general public holidays abroad and was led to bankruptcy because its management was unable to understand in time the developments and changes in the market that take part in the era of the internet.
by Thanos S. Chonthrogiannis
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But, factors such as the excessive over indebtedness of the group, which was the result of the non-timely changes and adjustments of the business model keeping the operating costs soaring, have been involved in the causes of the bankruptcy of the group.
Photo by Adrian Pingstone,
https: en.wikipedia.org/wiki/Public_domain
However, main and unique source of all the causes was the application of the purely personalised holiday type of “Do it Yourself -DIY” which was offered online by all other competitors in an increasingly large part of the world traveler population who are highly skilled or achieved to be skilled with digital technology.
The unsophisticated product
So, given the ever increasing rates of worldwide travelers using online platforms to reach affordable and low-cost satisfactory housing abroad including cheap air tickets for the time they were interested in, were as a point to be expected for companies like Thomas Cook to be forced to go out of the market.
The organized holiday package consists of three main axes. The hotel cost, air tickets and any other services of tour, entertainment, sale, etc., plus the profit margin that the company derives from all these services which should be higher than the corresponding total costs.
In the area of hotel catering internet platforms such as Expedia, Booking Holdings etc. make very difficult the competition for companies such as Thomas Cook which specialized in the mass tourism industry and organized holiday packages.
In addition, digital platforms in focus such as Airbnb give users and visitors of their websites the ability to design their own vacations at a very low cost without having to undergo the restrictions on the organized travel packages.
The prices offered by Airbnb for the focus via its digital platform are on average 15% to 20% lower than those of the same quality hotels and always for the same area. In this way, Airbnb manages to guarantee low-cost accommodation to 1 million people-travelers a day. A number that the world’s largest hotel chain cannot achieve.
Combined with guides to Google maps that are in the app and with everything else on their mobile phones, these travellers are at all times able to see where they are and how they will navigate to museums, monuments, restaurants, entertainment venues, etc. and making use of companies like Uber for their transportation.
Low cost airlines such as Ryanair, easyJet, Jet2 continually set the conditions for ever lower-cost air tickets since their bookings were online, and as a result, Thomas Cook’s airline was unable to compete with them.
On the other hand, Thomas Cook and until the last day before its official bankruptcy continued to base its business model mainly on its sellers and offices demanding from the customers their physical presence in them.
Globally, its offices exceeded the number of 600, maintaining in this way its operating costs at the highest levels, while its revenues were reduced on a constant basis due to the excessive pressure that the company accepted in its profit margins both in the hotel and on the airline part of the offered product.
Photo by Wakuwaku99, https://en.wikipedia.org/wiki/Public_domain
The management of the company
The continuous over-indebtedness of Thomas Cook, which took place over the last ten years, shows that the management of Thomas Cook was forced to enter into a price subsidy strategy for the offered package holidays to retain its market shares in the long term. In fact, the management knew that its product was not competitive and that it was constantly creating deficits covered only by borrowing.
The direct question arises as to why the management of Thomas Cook did not anticipate these developments to change and adapt to the new digital era its business model and its offered product to become profitable, since they knew that deficits were being created.
Quite possibly, an English company like Thomas Cook (which gives great weight to the historical tradition) whose “spine” for all these years from 1841 until today (178 years of existence) was its offices and its sellers in them-who are considered as profit centers & cost centers equally at the same time-to believe that on the one hand cannot “empty” all these people by firing them who for years constituted the locomotive of the company and on the other hand that in the last ten years any situation they faced would be manageable and that at some point the company would overcome the problem.
The fact that the rescue plan announced through the Chinese company Fosun (28/08/2019) in which the Thomas Cook Group would receive funds-£450 million in cash in exchange for 75% of the stake in its package of tour division and 25% of the stake in its airline segment concerned shows that the management of the group did not want to change and adapt to the new digital era both the company’s business model and its offered product/service.
We can therefore conclude that any company that wants to be competitive should always adapt its product/service and generally its business model if necessary, in the technological and all kinds of developments that take part in the market that is active. Otherwise sooner or later this company will be driven out of the market.
