The first time I came across the words Thomas Cook was on the 2003 squad jersey for Manchester City. Now, they have Etihad which is synonymous with deep pockets and City, by contrast, is a title winning squad since then.
The same sadly cannot be said about Thomas Cook, the world’s oldest travel company founded in 1841, was recently listed under administration. However, it is to be noted that the terms ‘administration’ and ‘bankruptcy’ aren’t the same. Under administration, there is still scope for revival depending upon plans drawn by lenders, financiers and the government help, if any. In bankruptcy however, there isn’t any such arrangement, in fact it is the last resort to salvage any return from the company which has lost its existence either through the company sale of its assets and/or capital.
A service based industry is usually looked upon as a driver of our economy. However, since the global meltdown in 2008, starting from the fall of the Lehman brothers, there has been a series of ill fate that is affecting this segment. Closer home, it has been Air India, whose revival and ability to break even has given the administration nightmares.
In both the cases of Thomas Cook and Air India, the trouble started due to faulty planning and wrong decisions with financing. Air India along with Indian Airlines were both revenue making entities with their own flight share, route augmentation and staff. However, bad policies and a rigid approach has made this topic a case study in many business schools and ensured a topic on “how not to merge two entities.”
In Thomas Cook, enjoying the patronage of the government and tourists alike trouble brewed in its 2007 merger with MyTravel which bloated its debt, wages and losses despite its annual turnover of 10 billion GBP and transporting nearly 20 million customers worldwide, the company is failing and moving towards bankruptcy.
British transport secretary Grant Shapps, wasn’t optimistic in a government bailout with the company needing 900 million GBP and having a debt of 1.7 billion GBP. As a result, the UK faces one of the toughest hurdles as it goes all alone after the Brexit, with the fall leading to 22,000 people unemployed. People have also blamed the impending Brexit as a reason for the fall with falling value of the pound and the uncertainty of Britain getting a leeway in this outcome affecting company policies.
Sadly, encounters like these show that there definitely exists a point of no return, which should not only be studied as case studies but also be in practice in the boardroom by top executives to prevent a return. Populist measures by a government can have several ramifications for generations as a job cut affects not just the breadwinner, but also their family.
The government and policy makers should form a Lessons Learnt And Reconciliation Commission that prevents such incidents and ways to mitigate their fallout. Having a professional and high quality team also helps and they should be given a free hand to run the entity without much government intervention.
The role of a government should be that of a facilitator and one who oversees the segments that drive their economy, however sadly, such is not the case in Air India merger or the recent Thomas Cook episode.
PS: there are conflicting views whether the issue is of administration or liquidation/bankruptcy. Above, I have given my points regarding what I read, i.e. administration.