Co-op News October 2019: Sustainable Development

THE COLLAPSE
OF THOMAS COOK
Retail co-ops say their own travel businesses are secure
More than 150,000 holiday makers had to be
repatriated following the collapse of travel agents
Thomas Cook. The business failure could lead to
the loss of the firm’s 21,000 employees’ jobs – 9,000
of these in the UK – unless the administrators can
sell at least part of the business as a going concern.
While some of those staff are cabin crew and pilots,
a much larger proportion work in retail outlets.
And thousands of those are likely to be former
employees of the Co-operative Group.
The Group entered into a joint venture with
Thomas Cook and the Midlands Co-op back in
2011 – called Thomas Cook Co-operative Travel –
to merge the three high street operations. The
arrangement was intended to reduce operating
costs across the three businesses by £35m a year.
Under the terms of the joint venture, Thomas
Cook owned 66.5% of the merged business,
the Co-op Group owned 30% and the Midlands
Co-op (which subsequently became Central
England Co-op) held 3.5%. The joint venture had
9,000 staff and 1,200 branches, of which 400 had
been Co-op Travel outlets owned by the Group.
Hundreds of jobs were lost through the merger.
A ‘push’ provision in the deal meant the Group
could require Thomas Cook to buy out its share
of the merged business after five years. This was
triggered three years ago, leading to Thomas Cook
paying the Group £50m in instalments – which
have all been paid. Central England received £5.8m
for its stake. Thomas Cook had two years to wind
down the use of the Co-op Travel branding.
Rod Bulmer, the then chief executive of
consumer services at the Co-op Group, said at the
time: “Going forward, having a minority stake in
a travel business does not fit with the strategy of
the Co-op. The financial arrangements for exit
that were put in place as part of the original joint
venture agreement represent the best value for our
members. The payments we receive from the exit
will be used to invest in our core business areas.”
However, there was confusion because the
Co-operative Travel brand has continued.
Several regional co-operative societies operated
travel agency operations under the same
Co-operative Travel branding, unaffected by the
tie-up with Thomas Cook. These societies included
Midcounties, Lincolnshire, East of England and
Chelmsford Star. There was further confusion
because, although the Midlands Co-op sold its
Co-op Travel business, it then merged its core
business with Anglia Co-op to become Central
England Co-op – taking on Anglia Co-op’s travel
business, which is also branded as Co-operative
Travel. That continues as a division of Central
England Co-op.
Both brands have a long heritage. Thomas
Cook was considered the pioneer of package
holidays – beginning in 1841 with a railway
excursion from Leicester to Loughborough (which
is commemorated with a statue outside Leicester
rail station). Co-operative Travel was founded
as an excursion department of the Co-operative
Wholesale Society in 1905, and also initially
focused on rail journeys. Its first overseas holiday
guide was launched in 1920. By the 1950s it was one
of the industry’s top five and was called Travelcare
until its relaunch as Co-operative Travel in 2007.
It had debts of £1.1bn, which
were costing £170m a year to
service. In 2018 it recorded a loss
of £163m on revenues of £7.4bn
The acquisition of the Group and Midlands’
Co-operative Travel businesses is now regarded
as one of the factors in the failure of Thomas
Cook. While mergers with Co-operative Travel
and previously with MyTravel in 2007 were seen
as potentially generating substantial economies
of scale, these were not delivered with sufficient
speed. Many cities and towns continued to have
more than one branch of the enlarged business,
which was operating with excessive overheads.
Moreover, the debt involved in achieving the
merger has proven crippling for Thomas Cook.
It had debts of £1.1bn, which were costing £170m a
year to service. In 2018 it recorded a loss of £163m
on revenues of £7.4bn.
What is strangest about the Thomas Cook
operating strategy is that this debt burden was
taken on as part of the process of enlarging the
retail footprint of the business just at the time
WRITTEN BY:
Paul Gosling
36 | OCTOBER 2019