Business Development

What Can Leaders Learn from the Thomas Cook Collapse?

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The collapse of travel giant Thomas Cook has rocked the UK economy.

The company had operated for almost 180 years, but still couldn’t weather the storm of debts, political unrest and social changes.

With such a public and complex history, there are many lessons that can be learned from the rise and fall of Thomas Cook. In this article, we’re examining the organisation and extracting key lessons for leaders.

 

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Where Did It Go Wrong?

Through its tenure, Thomas Cook adapted to many challenges. From the end of the Club 18-30 brand to the rise of online sales, the organisation was able to change their tactics to remain profitable.

However, this profitability came to an end in 2011 as the holidaymaker was bailed out with an emergency loan by a group of banks. This brought Thomas Cook dangerously close to insolvency for the first time in recent years.

Then, in May of this year as they reported a £1.5bn loss for the first half of the financial year. At this point, they were also shouldering the debt from the bail out from the banks which further intensified the fiscal pressure.

A pension deficit of £2bn and shareholder loans continued to add to the list of debts for Thomas Cook. Chinese company Fosun attempted to reach an agreement to buy the company but talks broke down at the last minute as they required the travel company to raise a further £200m to complete the sale.

Alongside these fiscal pressures, societal changes have also caused headaches for Thomas Cook’s shareholders. Fewer consumers choose to use travel agents, as direct booking and alternative travel services, like AirBnB, have become more popular.

Brexit’s impact on the travel industry has been profound, with shifts in currency and travel between countries changing our view on going abroad. This made for a more difficult market for the operator, and better weather in the UK also encouraged more potential travellers to stay home.

While the demise of the travel agent is undoubtedly tragic, there are many things that we can learn from this as leaders.


 

Changing Products to Meet Demand

Thomas Cook adapted well to online sales and changing tastes in holidays in the past but adapting to the post-Brexit marketplace proved a bigger obstacle. Speaking to Business Live, Dr Neil Robinson from the University of Salford Business School said:

“…the sector has come under many pressures associated with very slim profit margins for each travel product sold, a possibility of too many players in an already saturated market and one might argue that the product mix on offer at Thomas Cook did not align with what its customers really wanted.

Their price, promotion and how people actually booked Thomas Cook holidays did not keep pace with changing technology and demand, for example they still had a lot of high street outlets, which incur rental and other costs.”

 

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While these costs may have been acceptable during business booms, during Brexit they may have proved to be the tipping point for profitability. With changes in the climate, both economically and meteorically, many UK citizens chose to stay at home. Where they do opt to travel abroad, the trend is towards low-cost airlines and more casual accommodation.

Lodges, caravan parks, and unique experiences around the UK have been busy this year, with warmer weather driving their popularity. Creating more promotions around UK-based holidays and areas of interest could have captured a bigger share of this spend for Thomas Cook.


 

Positive PR for Engaged Companies

Thomas Cook employed 22,000 members of staff operating in 16 countries, and these employees suffered uncertainty over their future after the collapse. Airline operators EasyJet, TUI and Virgin Airlines quickly created job advertisements exclusively for the former cabin crew to apply for.

Under the hashtags #ThomasCook and #ThomasCookStaff on Twitter, even smaller companies began to reach out to those that had lost their job. Offers of new employment, de-stressing spa treatments, childcare while job searching, and help with CVs have poured in under these hashtags.

Companies that had their fingers on the pulse and a strong sense of CSR gained some real exposure and goodwill from these interactions.

ICS Learn student and blogger Natalie Ellis used this opportunity altruistically to create a rallying point for HR professionals willing to help recently unemployed Thomas Cook workers. With her fellow HR professionals, Ellis plans to offer career advice and emotional support to those impacted.

 


 

Large-Scale Emergency Planning

The governmental Operation Matterhorn was tasked with repatriating approximately 15,000 tourists in the wake of the collapse. Clear objectives and communications have been key in arranging this large-scale effort.

With more than 1000 emergency flights arranged within a fortnight of the company’s end, leaders can learn some valuable lessons here. British consulates around the world have offered a point of access for stranded tourists, with the Prime Minister visiting to recognise their part in the process.

Efficient communications and collaboration between these consulates can be likened to communications between departments. To endeavour to reach the goals that the organisation or government sets out, coherent collaboration must be in place. Consider how you could improve these processes within your organisation to take on mammoth tasks.

 

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The Importance of Regulation

ATOL protects holidaymakers in the UK from financial losses connected to travel agencies. This kind of regulation can be seen as obtrusive by business owners but in this case, this has drastically mitigated the damage to the individual consumer.

These regulatory bodies are often seen as toothless dragons, unable to really influence the companies trading within their sphere. With mass claims being made by travellers in the wake of this collapse, the importance of regulatory bodies like ATOL has never been clearer.

Engaging with these regulatory bodies and understanding the benefits that they offer your customers can put you ahead of the competition.

The average consumer is becoming ever savvier and aware of the protections offered to them by these bodies. This can make a huge difference to your bottom line, as they vote with their wallets and take their business to companies that they perceive to be more trustworthy.


 

Dealing with Redundancies and Transfers

With so many staff laid off as a result of the liquidation of Thomas Cook, leaders can gain insight into the end of the employment cycle.

Support has been offered to these new job seekers by the government, in the form of the DWP’s Rapid Response Service. They’re also entitled to redundancy payments from the government, paid for from the National Insurance fund.

However, more than 1000 former staff members will take legal action against the firm’s liquidators. They will seek a Protective Award, which would be granted to those that are made redundant from an office of 20 or more people without being properly informed.

Employers have a legal duty to consult with employees and engage them in a conversation about further options post-redundancy. If this claim is found to be upheld, then the employer is liable to pay up to 90 days’ pay for redundancies and up to 13 weeks’ pay for transfers of employment.

This legislation impacts redundancies across the UK, so employers should ensure they meet their legal duties. Before commencing a transfer of undertakings or making employees redundant, it’s essential that employers seek advice. This could end up costing large amounts in legal fees and redress if the correct criteria are not met.

 

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As the travel company winds up over the coming months, we’re likely to learn more about the circumstances surrounding the demise of the company. This will be an interesting case study for businesses to learn more about the do’s and don’ts of running a company on a large scale.

 


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