Tourism experts explained Thomas Cook’s collapse

Thomas Cook’s collapse could have repercussions far beyond the 150,000 holidaymakers stranded abroad or the people who paid for travel through the company. Thomas Cook’s failure is more devastating because its founder, who was born in the 19th Century, pioneered package holidays by taking the first group abroad in 1855.

There is an aid scheme to assist them. The law mandates that it be protected when tourists purchase their holidays as a package. ATOL was introduced by the UK in 1973 and covers many air package holidays as well as some forward-booked flights.

ATOL protects more than 20 million travelers every year. ATOL benefits are wide-ranging and include the ability to bring stranded travelers back to the UK in the event that the company from which they purchased their package goes out of business while they are abroad.

ATOL does not cover a traveler who buys a single flight from a travel agency or airline, even if they are issued a ticket. ATOL does not protect independent travelers who book different parts of their holiday unless they explicitly state that the hotel or flight is ATOL-protected. ATOL is funded by a levy of £2.50 per traveler, which the UK Civil Aviation Authority collects. The funds are held in an organization called the Air Travel Trust.

Stuck. Steve Parsons/PA Wire/PA Images

ATOL was created in response to major travel failures that left British tourists stranded abroad. However, to date, the ATOL has never had to deal with a loss of such magnitude as this Thomas Cook failure. In order to organize the repatriation, also known as “Operation Matterhorn,” the CAA (the government) had to hire planes as far as Malaysia in order to transport both the thousands of holidaymakers and the staff who were also stranded abroad. The UK is undertaking the largest peacetime repatriation ever, so it’s inevitable that there will also be problems and delays during this hastily planned operation.

The ATOL protection is only part of the issue. Many people had planned vacations, and the financial costs were just a small part. People who are traveling for a wedding, funeral, or other important functions may not have the ability to make alternative arrangements. If events are canceled, ATOL will not cover any costs.

There is seldom a single reason for such a major failure. Thomas Cook is in a very difficult situation. Earlier operational changes already stretched Thomas Cook. Some of these can be traced back to the merger with MyTravel Group in 2007, and others show the changing nature of the travel industry throughout the 21st Century.

The travel industry is also changing, with a growing level of competition. Tourism businesses rely on high volumes and small profit margins. This means they must fill plane seats and hotel rooms to make money. An empty seat will eat into the profits from other centers or spaces.

Thomas Cook’s management is ultimately responsible for its failure, but they were also faced with a variety of external factors. The Brexit talks, combined with a weak economic growth rate, have resulted in a much lower pound. The overseas travel industry has been hit with higher costs, further reducing their margins.

Thomas Cook’s size brings with it the obvious benefits of economies of scale. It may thrive in a growing business environment, but with a shrinking market and increased competition due to the rapid growth and expansion of AirBnB, numerous specialist travel agents and tour operators, and size can be a burden. Weather fluctuations in the UK also played a role, with record-breaking temperatures driving a surge in staycations. This, in turn, curtailed demand in a marketplace with an ever-increasing supply.