Thomas Cook has entered administration after rescue talks failed. Bosses were quick to blame the reluctance of banks to lend any more cash. But the writing was on the wall for some time, say experts, as its out of date model failed to keep pace with the way people book holidays.
Chief executive Peter Fankhauser said today (23 September) that it was “deeply distressing” that it “had not been possible to save one of the most-loved brands in travel”.
A loved British brand it might be but data from Kantar’s BrandZ research shows that it had lost relevance.
“Thomas Cook was a well-known name, but had no real competitive edge – consumers saw little difference between the brand and its competitors, and did not feel it had set any trends,” says Kantar’s chief growth officer, Jane Bloomfield. “The brand therefore lacked relevance in a competitive marketplace.”
An out of date model
Seeking over £1bn to stave off liquidation and see it through the difficult winter period, it fruitlessly turned to investors, banks and the government in the hope of generating a cash injection to save the jobs of 21,000 staff worldwide.
It was a recurring problem for the 178 year-old company. It had been laden with debts since a disastrous merger with MyTravel in 2007 and in 2011, its value plunged by 75% on the stock exchange. At the 11th hour it desperately, but ultimately successfully, raised £100m as its debts to lenders edged close to £1.5bn.
However, in this most recent race for cash to survive, there was little evidence for how it would once again try to turn the business around in the long-term.
“Many have blamed debt for the collapse of Thomas Cook, but its archaic operations model was the key issue – there were chances long before now to reroute cash from operations and enable positive change,” says Aaron Shields, executive strategy director at Fitch, an agency specialising in retail.
With Brexit looming and the pound at its lowest rate in three years, it’s easy to draw conclusions that people aren’t travelling. But the reality is that 60% of UK adults travelled abroad in 2018, a figure that was up from 57% the year before. Tellingly though, fewer than 15% of people would book through a package tour operator like Thomas Cook, according to travel agent trade body Abta.
“Just like other long-standing institutions in the banking sector, energy or telco they refused to accept that hand-holding and heritage wasn’t really what people wanted from them,” says Chris Moody, global chief design officer at brand consultancy Wolff Olins. “In a fundamentally new landscape of Airbnb, Trivago and last-minute deals, even the most unambitious of travellers were increasingly happy to take a risk and carve their own path.
“Generation easyJet started to see package deals in the same way they think of broadband deals: distressed inventory wrapped in pretty packaging.”
Although they are different business models, Shields believes Thomas Cook should have done more to emulate easyJet’s efficiencies. “EasyJet operates more than ten times the aircraft, yet employs far fewer staff,” he says. “Thomas Cook’s antiquated model kept many of its 20,000 employees in physical retail locations.”
Unsurprising then that Thomas Cook suffered a £1.5bn loss for the first half of the financial year, as reported in May. And in the face of such losses its marketing investment has steadily dropped in recent years.
According to Nielsen, its £12m ad spend in 2017 – which was already 3.5% lower than the year prior – was cut by the same again in 2018 to just £11m. By the end of the first quarter of 2019, a critical time for travel brands to lock in summer bookings, it had spent just £1.3m.
In the midst of this recession, it attempted a reorganisation of its marketing department. But that triggered a string of senior departures.
When its marketing and digital functions were combined in 2016, Gilles Despas, was promptly promoted to chief marketing and digital officer. But he left just one year into the job.
Chris Chalmers then joined in 2017 to head up marketing and e-commerce but left after just shy of 18 months.
Meanwhile, Jamie Queen, group marketing director, lasted two years in his role within the restructured department but left earlier this year for Buzz Bingo.
Its creative output has suffered as a result of this rotation of marketers. But Mark Elwood from the MullenLowe Group London says its communications problems go back to 2013 when, in an attempt to recover from the 2011 crisis, it rebranded and shrugged off the long-running and well known ‘Don’t just book it, Thomas Cook it” slogan in favour of something more modern that would attract younger consumers.
“Deciding to replace its longstanding, memorable strapline with ‘Let’s Go’ in 2013, [its] brand identity became muddled in the mind of consumers,” said Elwood.
Four years later it seemingly realised the error of its ways and resurrected its well-recognised line. However, its marketing message remained confused, targeting families one quarter before adopting a completely new creative platform in the hopes of wooing millennials the next.
Thomas Cook’s most recent and final campaign – launched in July under the guidance of yet another new marketing and e-commerce director Phil Garnder – haplessly sought to remind all potential customers that the company would help them make “memories that will last a lifetime”.
Marketing aside, at the root of Thomas Cook’s failure was its inability to be future-facing and it’s a warning shot to other travel brands in precarious positions.
“For other big name UK brands, today’s news will serve as a wake-up call: even the biggest of brands can topple,” says Kantar’s Bloomfield. “As a collective, the UK’s most well-known and valuable brands have ‘stalled’ in the last few years, underperforming in comparison with both the global economy and the most valuable brands in the world.
“Clearly at present there are some powerful factors at play – austerity, political uncertainty, reduced marketing budgets and more price-driven consumers – but there are lessons they can learn from Thomas Cook’s decline.”