The failure of Thomas Cook at the end of September reflects several aspects of contemporary capitalism.
Europe’s airlines and travel groups are suffering a classic problem of overproduction, or “overcapacity”, with more aircraft seats available than they can sell at a price at which all are profitable.
This happens periodically, broadly in synch with capitalism’s cycle of boom and bust. Tour operator Clarksons failed in 1974 amid the first major post-war slump. International Leisure Group followed in 1991 during the oil crisis triggered by the first Gulf War. The 2008 financial crash sparked the collapse of XL Leisure and its aftermath almost brought down Thomas Cook in 2011-12.
Cook was bought by German group C&N in 2000, Germany having Europe’s biggest economy and therefore largest travel market. C&N rebranded as Cook, acquired another UK group Airtours in 2007 and listed on the London Stock Exchange.
Then the 2008 crisis hit. The numbers taking overseas holidays from Britain fell by
20 percent. Cook hit a cash wall in 2011. Thousands lost their jobs. Consultants and bankers pocketed their fees and Cook emerged “recapitalised” but with a debt — £1.6 billion by the start of this year — which cost £170 million a year to service.
It was left a “zombie business”, unable to pay its debt, trading only until the next crisis. This hit last winter. A proposed rescue would have seen the group become Chinese-owned, with its airline owned by its banks. But at the death, the banks refused to stump up more, the government refused to act as credit guarantor and China’s Fosun balked at picking up the bill.
Cook traded in a sector structured on low pay — low-paid travel agents, call-centre staff, airport workers, cabin crew, resort reps and hotel staff. Yet somewhat like Woolworths, which collapsed in 2008, Cook was part of the fabric of the high street and of the lives of a proportion of Britain’s working class able to afford an overseas holiday perhaps once a year.
Two moves to restructure capitalism in the 1990s were factors in its demise. First, aviation deregulation in the US and EU created the space for “low cost carriers” to boom, free from union-negotiated pay rates and pension funds.
Second, the US opened the internet, created by academics with Pentagon funding, to profit-making — providing a platform for billionaire-backed businesses to by-pass incumbents in every sector.
The mainstream media attitude to Cook has been sneering, depicting an old-fashioned business catering to unsophisticated travellers.
But there are profits to be made even from a collapse. US hedge funds which bought credit default swaps on Cook’s debt are set to make $250 million on the liquidation while 21,000 people are thrown out of work.