Could Thomas Cook Go Bust?

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By

Alan Oscroft

Published in Company Comment on 22 November 2011

The share price collapses as the travel agent announces yet another setback.

It looked as if Thomas Cook (LSE: TCG) was going to make it through the winter, after announcing last month that it had secured a £100m credit arrangement with its banks to tide it over until next year's bookings started to roll in.

But that's all up in the air again, after the beleaguered high-street travel agent revealed that it has gone back to the banks to try to borrow more money -- and that the firm's full-year results will be delayed until it has completed its current round of begging.

Thomas Cook has seen business deteriorate badly this year, after a number of its popular North African and Middle Eastern destinations were all but closed off by the wave of 'Arab Spring' uprisings. Such political developments have been great news for the oppressed people concerned, but it's understandable when holidaymakers don't think such countries are the ideal places to go for a relaxing fortnight.

Share-price collapse

Anyway, this morning's banking news caused Thomas Cook's shares to immediately lose more than half of their value, falling to below 20p.

That hammers home my colleague Prabhat Sakya's recent warning about catching falling knives, and comes after a dire year in which the price fell all the way from around 200p to yesterday's close of 41p.

So, what's up now? Well, today the holiday firm told us of a "deterioration of trading in some areas of the business in the current quarter", while stressing that it has not actually broken its banking covenants -- yet.

Confidence evaporated

The existing loans and credit facilities available to Thomas Cook did, only a month ago, sound like they were enough to ride out the current storm. But today's news must seriously dent confidence in the management's grip on events, if the directors really didn't see this coming... and it must make us wonder what further problems they'll uncover tomorrow, next week or next month.

Until now, I thought that Thomas Cook was likely to survive the winter and that its longer-term fortunes would hinge on next summer's business -- but that's all changed, and now I wouldn't bet on it lasting until Christmas... especially if these latest financial troubles also prompt ordinary holidaymakers to doubt the group's future and book elsewhere.

What do you think? Please share your thoughts, below.

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Comments

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miridimus 22 Nov 2011 , 12:07pm

This company has large borrowings and negative net tangible assets. It is in a highly recession-prone industry and also vulnerable to international unrest. IMHO it will not survive.

millwall11 22 Nov 2011 , 12:51pm

TC is a dinosaur with 1350 costly high street shops in the UK alone selling old fashioned 1-2 weeks packaged tours, in a world where people want to book their own bespoke package on the Net. Its the next Woolies, Doomed.

RobbesPierre 22 Nov 2011 , 12:54pm

Is this the start of the real recession? We have not seen anything yet. The signs are all over the high street at the moment that people are truly starting to 'draw in their horns'

BarneyCowshed 22 Nov 2011 , 1:13pm

I can't see myself booking my summer hols with TC - plus it's 1 week not two because of the economy. Many thousands more in the same boat I expect putting TC on a very slippery slope.

Maybe Richard Branson will fancy the shops for his new bank,

marktughan 22 Nov 2011 , 2:50pm

I think there is a good chance that TC will be the Woolworths of a new recession. TC has been slow to adapt, and thus has an outdated model and structure. It's massively vulnerable now to confidence evaporating.

alsirat 22 Nov 2011 , 5:46pm

Is that good or bad for TUI?

mallyscott 22 Nov 2011 , 8:08pm

I bought some euros at a Thomas Cook airport currency exchange, what a rip off. I got fewer euros than I paid in pounds.

jaizan 22 Nov 2011 , 8:15pm

As stated above, they have an outdated business model. A buggy whip company.

They may also suffer from a loss of confidence. Most people realise travel companies go bust from time to time, so why risk booking a holiday with one that's known to be struggling?

Spe8d 22 Nov 2011 , 9:12pm

Ah well, I have a holiday booked through Holidays Direct(a subsidiary of TC?). I only hope they survive until February at the earliest.

duffmanchon 17 Dec 2011 , 11:42am

Worth a punt surely? The banks and the government won't let it fail, especially as we now own RBS and LLOY who are being criticised for not lending to businesses. There could be a buyer who would come in, strip the assets and make a packet. Package holidays are here to stay, the ATOL protection is always worth having when booking a holiday and they take away all the hassle of booking separate transfers etc.

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