Why Did Thomas Cook Collapse - And Why Was There No Government Bail Out?

Boris Johnson's government has faced fierce criticism for its decision not to step in and save the historic travel company.

Thomas Cook has collapsed, leaving up to a million customers with their holidays cancelled and some 150,000 UK holidaymakers already abroad to be repatriated.

In May 2019 the company announced losses of £1.5b and pinned the blame on Brexit uncertainty, stating that “political uncertainty” related to leaving the EU had led to a “softer demand for summer holidays”, amongst other factors such as 2018′s heatwave.

In the days leading up to its demise, the troubled holiday giant had been ordered to find £200m in order to secure its finances in the short-term – a shortfall that the government had been urged by some to fill in order to avoid travel chaos and the loss of 22,000 jobs, including 9,000 in the UK.

Boris Johnson revealed on Monday that Thomas Cook had appealed for £150m of public money in order to save it from collapse, however its request was refused as it would pose a “moral hazard” in the case of other companies facing financial hardship, Sky News reported.

Speaking on ITV’s Good Morning Britain, Transport Secretary Grant Schapps went into more detail about the government’s decision not to bail out the company, and stated that the repatriation process was expected to cost approximately £100m, with 45 jets pulled in from around the world to help.

When asked why the government hadn’t stepped in, he replied: “The company were asking for up to £250m, they needed about £900 million on top of that and they’ve got debts of £1.7bn, so they idea of just spending tax payers’s money on that just wasn’t really a goer.”

A Thomas Cook plane on the tarmac at Gatwick Airport in Sussex as 178-year-old tour operator Thomas Cook has ceased trading with immediate effect after failing in a final bid to secure a rescue package from creditors.
A Thomas Cook plane on the tarmac at Gatwick Airport in Sussex as 178-year-old tour operator Thomas Cook has ceased trading with immediate effect after failing in a final bid to secure a rescue package from creditors.
PA Wire/PA Images

He added: “I think the problem of putting money into it – apart from the fact governments don’t usually go around investing in travel companies – is that it may have just stretched things out for a couple of weeks and we could have been exactly where we started.”

In another interview on BBC Radio 4′s Today programme, Schapps said the government’s view was that a bail out would have only sustained the company for a “very short period of time”.

“The company had systemic issues to do with the world of travel which had changed away from high street shops to everyone booking online, and had at one point £1.7bn of debt,” he said.

With a huge loss of jobs and up to a million customers impacted by holiday cancellations, the government’s critics have been quick to speak out.

<strong>Infographic supplied by Statista.</strong>
Infographic supplied by Statista.
Statista

Shadow chancellor John McDonnell hit out at leaders for failing to step in and bail the travel company out, saying that an intervention could have “stabilised the situation” and given “breathing space” to allow the company to consult the workforce about how to move forward.

Describing the government’s stance against state intervention as “ideological bias”, he told the BBC: “To just stand to one side and watch this number of jobs go and so many holidaymakers have their holiday ruined, I just don’t think that’s wise government.”

Manuel Cortes, general secretary of the Transport Salaried Staff’s Association, had urged talks last week between Thomas Cook and the government.

““To just stand to one side and watch this number of jobs go and so many holidaymakers have their holiday ruined, I just don’t think that’s wise government.””

- John McDonnell

Speaking hours after the collapse early on Monday morning, Cortes said that administration “need not have happened”, and accused the government of discarding “ample opportunity” to step in, instead choosing “ideological dogma over saving thousands of jobs.”

Describing the decision not to intervene as “shameful and wrongheaded”, Cortes also pointed out “the question of repatriating 150,000 British holidaymakers and the cost to the public purse of doing so.”

He said: “Our union is still urgently seeking meetings with government to discuss exactly what happens next and will not give up the fight for jobs. But clearly Tory ministers should hang their heads in shame over their inaction.”