Travel Giant Thomas Cook Collapses, Sending Rival Tui and Low-Cost Airlines Higher

Travel operator Tui and low cost airlines soared on Monday after Britain’s oldest travel agent Thomas Cook collapsed.

Travel operator Tui and low cost airlines soared on Monday after Britain’s oldest travel agent Thomas Cook collapsed.

Travel operator Tui and low-cost airline stocks soared on Monday after Thomas Cook, Britain’s oldest travel agent, collapsed.

The 178-year-old firm failed to secure the further £200 million needed to survive over the weekend, leaving 150,000 British holidaymakers stranded abroad.

The back story.

The tour operator agreed a £900 million rescue deal with Chinese investor Fosun last month, which would have written off £1.7 billion in debt.

However, on Friday Thomas Cook said it needed an additional £200 million following a demand from its banks.

The company had said it was in talks with its banks and bondholders as well as its largest shareholder Fosun.

Britain’s oldest travel agent, founded in 1841, has faced mounting headwinds as online holiday booking companies have grown in popularity, and low-cost airlines provide tough competition. Last year’s summer heat wave in Europe, and high temperatures again this year, led to a fall in holiday demand.

The company reported a £1.5 billion ($1.75 billion) loss in the first half of the financial year, including a £1.1 billion loss following its decision to write down the value of My Travel, which it merged with in 2007. It predicted further headwinds and claimed that Brexit had led to customers delaying holiday plans.

What’s new.

Thomas Cook confirmed on Monday that it had entered compulsory liquidation after failing to secure a further £200 million over the weekend.

Chief executive Peter Fankhauser, who has taken home more than £8 million in remuneration since taking over in 2014, said it was a “matter of profound regret.”

The government-backed Civil Aviation Authority has stepped in to undertake an “emergency operation” to repatriate an estimated 150,000 Brits stranded abroad.

Package holiday rival Tui’s stock soared 7.5%, despite a small number of holidays with flights booked on Thomas Cook’s airline being affected.

Low-cost airlines also took off on Monday, with easyJet climbing 3.4% and Ryanair lifting 1.1% after Thomas Cook’s final passenger flight came into land for the final time. Dart Group, a pick from Eagle Capital’s Meryl Witmer at this year’s Barron’s Roundtable, has gained 7.1%.

Moving forward.

Intense competition has squeezed airlines and travel operators in recent years, and Thomas Cook’s collapse will alleviate overcapacity in the industry.

However, greater problems face the sector, including falling holiday demand and the rise of online booking companies.

Platforms, such as AirBnB and apps for car hire and flights, have allowed consumers to book each aspect of their holiday separately.

It will take more than the demise of Thomas Cook to inject some much need life back into travel operator industry in the long term.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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