What Thomas Cook’s Collapse Says About Modern Tourism

On Monday,

Thomas Cook

500413 -1.82%

announced that it had entered compulsory liquidation after failing to strike a £1.1 billion ($880 million) rescue deal with investors and creditors. The move put 21,000 jobs at risk and stranded up to 600,000 vacationers. The company’s stock had already plunged 90% this year. There aren’t many companies left that run everything from strip-mall travel agencies to airlines, cruise ships and hotels, as the gains from coordinating flight and room bookings have turned out to be much lower than expected. Thomas Cook was eventually cornered by the rising cash demands of servicing a £1.8 billion debt pile while doubts for its future sapped sales. Its only comparable rival,


is holding up much better, and its stock rose 7% Monday. The two companies’ diverging journeys point to trends still unfolding in the travel industry.

Thomas Cook entered liquidation on Monday.


vickie flores/Shutterstock

When Thomas Cook merged in 2007 with U.K. rival MyTravel—whose assets it was forced to write down in May—it was already under threat from online comparison engines like



Booking Holdings

which allow holidaymakers to book flights and hotel rooms directly. Contrary to expectations, bricks and mortar travel agencies haven’t been annihilated. In the U.S., there are now 79,000 travel agents in employment, compared with 85,000 12 years ago, according to official data. Roughly half of all U.S. travel is still booked offline, according to industry research firm Phocuswright, allowing traditional package holidays to ride on the coattails of the recent travel boom. However, something fundamental did change: brand power. Before the rise of online booking—let alone when Thomas Cook was born in 1841—travelers relied on the tour operator brand not just for simplicity and peace of mind, but also to ensure a certain level of quality when staying in unknown countries.

Now this is only a necessity in trips that are complex to book or demand a certain level of luxury, shifting power to the big international hotel chains. Even as many independent hotels buckle under the pressure of the booking websites and flat-sharing platform Airbnb, chains like Marriott, Hilton and InterContinental—and to a lesser extent Hyatt and Accor—are reaping large benefits from scaling up their brands, often through franchise agreements. In Europe, 40% of hotels are now under big brands, compared with 30% a decade ago, according to consulting firm HVS. The taste for branded luxury travel has also buoyed cruise operators. This business tends to have very high margins, partly due to bottlenecks in the German and Italian shipyards that build most of the ships. Unlike Thomas Cook, TUI identified these trends and focused on directly owning luxury hotels and cruise ships. Cruises accounted for 28% of its operating profit last year, despite contributing less than 5% of the revenue. TUI’s future isn’t a certain one, though, even without competition from its main rival. Small travel agents may be surviving, but TUI is the last big company trying to keep the power of a package-tourism brand alive. And that ship may already have sailed. Write to Jon Sindreu at jon.sindreu@wsj.com

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