Thomas Cook shares collapse as financial troubles unfold
Europe’s second-biggest travel firm after rival TUI Travel has suffered a disastrous year, and is looking to borrow around £100m to tide it over during December, when trading is traditionally quiet, and give it sufficient headroom to be in no danger of breaching banking covenants. The group has suffered from the impact of the Arab spring, which has hit bookings to Tunisia and Egypt. Some analysts question the long-term survival of the travel company. Travel agency chains might soon join bookshops, record shops and bank branches as yet another high street victim of the internet and the recession.
Doubts over the future of Thomas Cook surfaced on Tuesday with shares tumbling by as much as 70pc after the struggling European tour operator said it needed more cash from its banks.
The troubled travel operator is now worth just £120m after its shares have plunged 93pc since the start of the year. Thomas Cook’s share price today tumbled 67.19pc to 13.48p in midday trading.
The share price dive is worse than early morning deals, when the price slumped to as low as 15.6pc, down from 21.69p, after the British travel firm said it was renegotiating its bank debt.
Europe’s second-biggest travel firm after rival TUI Travel has suffered a disastrous year, leading to the resignation of its chief executive Manny Fontenla-Novoa in August.
Thomas Cook finance director Paul Hollingworth said the group was looking to borrow around £100m to tide it over during December, when trading is traditionally quiet, and give it sufficient headroom to be in no danger of breaching banking covenants. That is in addition to the £100m short-term credit line that Thomas Cook agreed with its banks following talks in October.
“It’s a combination of the trading and its impact on our cash position making covenants tighter. The sensible, prudent thing for the company to do is enter into these discussions with the lenders and make sure we get the additional liquidity,” Mr Hollingworth said.
The group has suffered from the impact of the Arab spring, which has hit bookings to Tunisia and Egypt, destinations popular with France and Russia respectively, as well as UK holidaymakers.
However, interim chief executive Sam Weihagen said the firm was a “robust business that has a great future”, adding the firm was operating “business as usual”.
Analysts reamined far from convinced, with some questioning the long-term survival of the travel company.
James Hollins, of Evolutions Securities, said: “Legitimate questions will be asked as to whether Thomas Cook can survive long-term.”
About 200 retail stores are expected to close and six aircraft sold off to help the company withstand the enormous headwinds.
“The company is in discussions with its principal lending banks with regard to its facilities during the seasonal low period of cash in the business,” it said in a statement on Tuesday.
The holiday group has issued a number of profit warnings this year and parted ways with its long-standing chief executive.
It added: “While the Company currently remains in compliance with its financing covenants, it also intends to seek agreement from its lending banks to adjustments that will improve its resilience if trading conditions remain difficult.”
Thomas Cook said it would delay publication of its full-year results, originally due on Thursday, until the discussions are concluded.
A spokesman said the company wanted as much “flexibility” as possible and the discussions with banks – and subsequent delay of results – meant it was making a “prudent” move in preparation for one-off events over the Christmas period, such as bad weather which last year caused severe disruption.
On Sunday, it emerged the travel operator would close about 200 of its agencies and cut six planes from its aircraft fleet.
It a statement on Tuesday, the company said it expected its full-year operating profit to be in line with previous guidance.
In September, Thomas Cook suspended dividend payments to rebuild its balance sheet.
Manny Fontenla-Novoa lost his job as Thomas Cook chief executive in August after the third profits warning of the year, triggered by the under-performance of its UK business and political unrest in key tourist markets such as Egypt and Tunisia.
The final months of the year are a time when cash inflow at the tour operator is usually weak because it is a quiet time for bookings.
The spokesman said it expected the results to come within weeks.
Thomas Cook reassures holidaymakers after shares plunge
Thomas Cook is reassuring holidaymakers it is business as usual for its flights, hotels and travel agents after the debt-laden tour operator admitted it was in urgent talks with bankers to raise a further £100m – just a month after it last asked its lenders for £100m.
The holiday company, which was founded in 1841 and now provides 7 million breaks for British travellers every year, already owes nearly £1bn to lenders including 17 banks and its debt could top £1.5bn by the end of the year. The value of the company plunged by 75% on the stock exchange making it worth just £87m.
In a message on Twitter, the embattled tour operator said: “Thomas Cook reassures all customers it is business as usual. Our holidays are fully protected and can be booked with complete confidence.”Chief executive Sam Weihagen said: “We are as good and reliable today as we were yesterday. Flights are leaving as scheduled, shops are open for business.” He added Thomas Cook was “pretty confident” the banks would again prove supportive.
The group is Europe’s second largest tour company and operates almost 1,000 high street travel agencies in the UK. As well as its eponymous brand, Thomas Cook trades under many other names, including Going Places, 18-30, Cresta and Sunset. In recent years the package holiday industry has come under severe pressure.
The traditional two week “flop and drop” Mediterranean holiday has been hit by cutthroat competition which has slashed margins. Meanwhile more adventurous, internet-savvy travellers have taken their business elsewhere and once-profitable sidelines such as travel insurance have also been lost to online rivals.
At the same time rising unemployment, petrol prices and gas and electricity bills have put pressure on family budgets. In the squeezed middle lie tour operators such as Thomas Cook, whose travel agency chains might soon join bookshops, record shops and bank branches as yet another high street victim of the internet and the recession.
On Tuesday the company said bookings in France and Belgium had dropped by 20% in the last few weeks as consumer confidence has been hit by turmoil in the eurozone. The continued political uncertainty in Egypt, one of Thomas Cook’s longest established holiday destinations, has added to its problems, as have the floods in Thailand.
Industry insiders said Thomas Cook must decisively stamp out doubts about its financial health before the new year, typically the busiest time for summer holiday bookings. Chris Photi, a travel industry accountant and turnaround specialist at White Hart Associates, said: “By January this needs to be ‘old news’. Right now, would I want to be booking a Thomas Cook summer holiday? No. I may be covered if the group went bust, but why would I put myself through that uncertainty?”
On Tuesday the company’s shares, worth more than 200p at the turn of this year, were changing hands for just 10p.The company’s financial dire straits have led to a string of senior executive departures in recent months.
Thomas Cook’s colourful chief executive Manny Fontenla-Novoa left abruptly in August. Over the previous four years he had received pay totalling £14.5m in cash and shares.Like most travel companies, Thomas Cook enjoys huge revenue inflows in the first half of the year as holidaymakers book their summer breaks, but the group must also manage sizeable outflows in the winter months when the bulk of flights and hotel arrangements must be paid for.
For Thomas Cook the UK has been the source of the most persistent problems in recent times. The group had been expected to detail radical plans this week to slash the range of holidays offered to British customers and reduce its 41-strong fleet of aircraft servicing the UK.
That cost-cutting push is still planned, but the details, along with the company’s annual results, have been postponed while urgent negotiations continue with bankers.
Five weeks ago Thomas Cook announced it had removed concerns that it could breach its borrowing agreements this winter after securing an additional £100m loan and looser lending terms from the banks.The biggest travel group failure in recent years was XL Leisure in 2008, which left the taxpayer-backed Atol consumer protection scheme to fund a £27m repatriation and compensation bill for 85,000 holidaymakers.
The scheme was £42m in deficit in March despite a recent increase in the levy from £1 to £2.50 that Atol takes from travel agents for every holiday booking.There are fears that the organisation could be overwhelmed by the collapse of a major operator such as Thomas Cook.
But an Atol spokesman said: “We have lines of credit agreed with our financial backers which can be drawn upon.There is not going to be a situation where we cannot meet our obligations.” Atol is ultimately guaranteed by the Department for Transport, although the spokesman said it did not envisage a situation where Atol would seek taxpayer support.
Nationalisation of a travel agency sounds far-fetched, but has a historical precedent. In 1948, Thomas Cook was nationalised as part of the British Transport Commission and stayed in public hands until 1972.
It was offloaded to a consortium of Trust House Forte, Midland Bank and the Automobile Association after spending years in uneasy competition with new operators specialising in cheap package holidays to Spain.