Search the blog

Popular Posts

Premier EPOS Blog
What You Can Learn From Thomas Cook’s Failings

What You Can Learn From Thomas Cook’s Failings

  Business   0 Comments   October 10, 2019   Lauren Francom

Amidst the current Global Markets, No Business Is Safe! If the world’s oldest travel company can fail so catastrophically, so suddenly, then what about your business?? With annual sales of £9 billion, over 19 million customers a year and employing 22,000 staff in 16 countries, nobody expected the collapse of Thomas Cook to come so suddenly. Thomas Cook’s journey began 178 years ago in 1841 and they had seemingly cemented themselves as one of the world’s leading travel experts.

Disruptive forces acting against Thomas Cook coinciding with the decline in sales, the falling use of high-street travel agents, the rise of online travel agents, and the rise of low-cost airlines left Thomas Cook in a weakened position. But ultimately, a series of poor business decisions, particularly the acquisition of MyTravel, is what unfortunately led to the downfall of the travel giant and left 150,000 holidaymakers stranded abroad.

The Decline in Sales:

In 2018 Thomas Cook faced a slow-down in holiday bookings. Some speculated that this slow-down in bookings was due to good weather in the UK, with the Met Office reporting it to be the hottest summer on record with weeks-long heatwaves. Many Britons may have opted to stay at home for their summer holidays instead of travelling abroad. Earlier this year Thomas Cook’s chief executive suggested that British holidaymakers were delaying their summer holiday plans due to Brexit.

Brexit:

Following Brexit, the sterling pound has weakened, falling to the lowest level in three years. Economists indicate that a no-deal Brexit could have a detrimental effect on the stability and strength of the pound. Currently, £1 equates to €1.12 which means that €1 is worth 89.26p. A no-deal Brexit could see the pound dip well-below a 10 year low. However, whilst Brexit may have a small influencing factor on sales, it is unlikely that this was the most detrimental contributing factor to Thomas Cook’s demise.

demonstrates the value of the GBP versus the EUR in the years 2016-2019

Figure 1: demonstrates the value of the GBP versus the EUR in the years 2016-2019

Terrorist Attacks:

Thomas Cook placed a big bet on Tunisia as a holiday destination, taking over 200,000 UK holidaymakers to Tunisia in 2014. However, a series of terrorist attacks shut down the country’s tourism industry. A tragedy in 2015 where a gunman killed thirty-eight people at a beach-front hotel in Tunisia led to the British Government issuing caution warnings to those planning on travelling to Tunisia. Travel companies, including Thomas Cook, were prompted to bring home more than 3,000 UK holidaymakers and urged 500 independent travellers to also return. Those with package deals were able to choose to go to another destination, or alternatively get their money back. This caused huge disruption for Thomas Cook in 2015, requiring a huge amendment of holidays.

Falling Use of Travel Agents:

The number of Britons taking holidays appears stable and remains high. Yet the methods in which customers choose to book their holidays have shifted over the years. Thomas Cook’s 550 branches on the British high street became an expensive liability to the company. As four in five people now opt to book their holiday’s online… Only one in seven opt to go into the high street travel agents to buy a holiday. Therefore, perhaps 550 high street stores was not economically viable. Instead, Thomas Cook should have adapted to this market shift, closing a large portion of their high street stores and instead pushing to improve their online presence and booking services, to remain relevant in a highly competitive industry.

Prior to Thomas Cook ceasing trading around 1,170 travel agents have shut stores since 2012 (now nearing 1800 following Thomas Cook’s 550 high-street stores closing). More than 350 high street travel agencies closed in 2017 alone. Increasingly people are opting to book their own holidays independently from the travel agents. With the ability to use sites such as Skyscanner and Expedia to get the best deals possible for flights and hotels, customers no longer need to traipse into the travel agents to book their holiday. Customers can book their holidays from the comfort of their own home and compare all of the deals against their competitors. Travel Supermarket even offer a service to make this even easier, allowing the comparison of deals from Expedia, lastminute.com, EasyJet, loveholidays, ebooker.com, etc…

Competing Against Low-Cost Giants:

The package holiday industry is still booming, with 49% of UK holidaymakers opting for a package holiday. Yet, Thomas Cook simply could not continue to compete against the low-cost airlines (Jet2, founded 2002 and EasyJet, founded 1995) or the online-only travel agents (On the Beach, founded 2004 and We Love Holidays, founded 2012) which came onto the scene and undercut Thomas Cook on price with less overheads to cover (so without 550 high-street stores to prop up). Thomas Cook failed to defend their position at the top, neglecting the opportunities to adapt to the market, letting fierce newcomers encroach on their market share, leading to their demise.

The Burden of MyTravel:

A cataclysmic deal between Thomas Cook and MyTravel saddled Thomas Cook with heavy debts. Thomas Cook wrote off more than £1.1 billion from the 2007 merger with MyTravel. The deal had intended to create a European giant with promises of £75 million a year savings. This was not the reality. MyTravel had only made a profit once in the previous six years. Thomas Cook merely inherited the company’s debt.

The Dire State of the Travel Industry:

TUI, Thomas Cook’s main competitor, announced it’s also struggling shortly after Thomas Cook ceased trading. Travel companies are fighting to keep afloat in the face of continuous challenges. Online bookings are continuing to rise, resulting in a competitive digital landscape. Customers are easily able to search around the internet for the best possible price, therefore travel agencies must offer unparalleled value for money to warrant a price premium. Why book with Jet2 Holidays for £1500 when you could book LoveHolidays for half the price? Jet2 offer 22kg luggage and a well-rounded package deal.

Importance of Business Adaptation:

Thomas Cook, in the end, was not too big to fail. Adaptation is the key to thriving in the current climate. Businesses face a great deal of uncertainty, which does make strategy making challenging as traditional strategy theory assumes the world is stable and predictable. However, failure to adapt to the challenge of uncertainty poses a greater threat, extinction or irrelevance.

Companies need to use market data to evaluate their business model in order to adapt to constant shifts in spending habits, holiday destination preferences, and holiday booking preferences to forecast the future. Much like their planes, travel companies cannot afford to be static.

Companies must also get it right for the customers by producing the right product, at the right time, and in the right place. Using software such as an EPOS in retail can alleviate the difficulty of ‘getting it right for the customer’ as stock management is taken care for you on the system which can save a lot of time and money and can also use past data to predict how many of each item you need to have in-store which can also reduce waste and stock-outs.

Companies must demonstrate their value to customers. However, what customers value can change over time. A lot of customers today value convenience, opting to spend more money to save time. Thomas Cook failed to convey their convenience to the customer. Most other travel companies (On the Beach, TUI, First Choice, Jet2holidays, HolidayPirates) have apps where you can search and book your holiday. Yet Thomas Cook only had an app for currency converting and MyHoliday which allowed customers to manage their holidays in terms of adding extras to the holiday, view hotel details, book excursions or view the weather (but not make bookings). Moreover, Thomas Cook’s currency converter app was rated an abysmal 1.7 out of 5 with many poor reviews complaining about how slow and useless it was.

Adaptation to market not only applies to the travel industry, but to almost every other industry too. If we take a look at Nokia, they underestimated how critical the shift to smartphones was. Arguably, Nokia was content with its business performance (holding more than 38% of mobile phone market share in 2007 - see figure 2) with most of those profits not coming from smartphones. Therefore, they did not see the need to innovate and develop the mobile phone further. This resulted in Nokia becoming fairly irrelevant by late 2012.

mobile phone market share held by Samsung, Apple, Huawei and Nokia 2009-2019 (data from Statistica)

Figure 2: mobile phone market share held by Samsung, Apple, Huawei and Nokia 2009-2019 (data from Statistica)

On the other hand, Steve Jobs, who was pioneering Apple’s technological revolution, said concerning customers “Some people say, ‘give the customers what they want’, but that’s not my approach. Our job is to figure out what they are going to want before they do... People don’t know what they want until you show it to them… Our task is to read things that are not yet on the page.” Steve Jobs indicated that instead of being customer-driven, companies ought to be market-driving. Nokia failed to give customers what they didn’t know they wanted or needed yet - a smartphone.

With the loom of Brexit being a business owner can be incredibly daunting, but creating and implementing a clear strategy and setting goals for the future can alleviate the uncertainty. However, it is critical that strategy is not static, but rather that it is as flexible as the environment.

0 Comments



Leave a reply

Your email address will not be published.

Search the blog

Popular Posts

Premier EPOS Blog

Facebook

GET A QUOTE