Thomas Cook insolvency

Package tourism inventor bankrupt: the Thomas Cook insolvency has a suction effect

Reiner Hertl
28.09.2019
6 minutes

The effects of the decline of the travel giant are so severe that many media took to using live tickers. This affects around 600,000 stranded tourists and 21,000 employees, subsidiaries and airlines, airports, pilots, holiday regions and hoteliers, the travel industry and the aviation market, banks and insurance companies. Let’s turn briefly to events and developments, crisis management, recall actions, Condor and Co…

Cancelled holidays, stressed holidaymakers and “Operation Matterhorn”

For hundreds of thousands of customers, not only booked return flights were suddenly in question when Thomas Cook Group plc filed for bankruptcy on the night of the 22nd to 23rd September. Understandable annoyance among the holidaymakers – the holiday mood gave way to anger and consternation.. But also solidarity: As one passenger reported, money was even collected for the crew when the last flight of the insolvent company was scheduled for landing in Manchester on 23rd September.

In Great Britain, the government saw itself as responsible. Flying home package tourists is a matter for the state. So, the “biggest peacetime repatriation” was announced and put into action. Under the code name “Matterhorn”, British holidaymakers are flown home from 55 destinations.

In Germany, in the event of insolvency, insurers are responsible for bearing the costs of bringing package tourists home:

Who pays if my insolvent tour operator can no longer fly me home?

If the provider can no longer guarantee the return journey and is insolvent, a travel insurance policy for German package travellers is taken out via the so-called risk coverage certificate, “Sicherungsschein”. Not until July 2018 was the travel law newly regulated.

The travel insolvency insurance of Thomas Cook GmbH has a liability sum, limited to a total sum of 110 million euros. Should this not be sufficient – which would be possible with the volume that might be necessary here – it could also be the case that return passengers only receive a proportional refund of their costs.

There were already demands at an earlier date to cover insolvency insurance and insurance for package travellers with a significantly higher maximum amount.

German Thomas Cook subsidiaries such as Condor had not filed for insolvency by 25th September. Condor itself had in the meantime suspended outbound flights for holidaymakers who booked with Thomas Cook organizers. Return flights from destinations, however, were said to be still guaranteed.

On the 25th of September the German tour operator Thomas Cook also filed for insolvency. This means that the insolvency insurer is in the obligation to return travellers. For which different ways can be open.

With the insolvency application the insolvency insurance becomes active

Now that the German Thomas Cook GmbH has also filed for bankruptcy, its holidaymakers can be sure that they can apply for compensation. Anyone who has booked with the German tour operator with the brands Thomas Cook, Öger Tours, Neckermann, Air Marin and Bucher Reisen will be returned by the insolvency insurer.

The German subsidiary therefore considered it necessary to file for bankruptcy in order to break free from the “financial links and contingent liabilities” with the parent company. Like Condor, she has also applied for a bridging loan:

State aid granted and not granted, bridging loans and bottlenecks

Proof of “sustainability” is one of the basic conditions for state financial aid. The German airline and Thomas Cook subsidiary Condor is struggling, but in itself profitable and operationally healthy. It has now been granted a bridging loan of 380 million euros with a state rescue plan. One part is borne by the German federal state of Hessen, where Condor has its headquarters, the other by the federal government. Condor can then fly on with its machines under the so-called protective shield procedure, a special feature of German insolvency law.

And it has room for the search for a new owner. The Nuremberg investor Hans Rudolf Wöhrl, for example, has expressed interest, as reported. The former parent company Lufthansa, which once sold Condor, is also considering an investment. One could imagine a rapprochement with the former Thomas Cook rival TUI, whose TUI Fly aircraft fleet wants to increase even further. The US investor Indigo Partners is also under discussion.

Before the decisions for the guarantee for this subsidiary were made – what was the situation like for the British parent company in its insolvency?

The government in London had refused to help the British Thomas Cook on the grounds, among other things, that it did not want to use taxpayers’ money to encourage negligent behaviour. “I’m afraid that would have only kept her afloat for a very short time,” the BBC quoted the British Minister of Transport Grant Shapps. The procurement of a financial injection from private investors also failed.

So how did Europe’s second-largest travel group after TUI collapse? More about the “deeply sad day”, as CEO Peter Fankhauser called it:

Questions of guilt and search for causes

The trend towards individual tourism should be a factor influencing the bankruptcy of package tourism. As well as the relentless price war and fierce competition in the entire travel industry. Even share losses did not make things any easier for the tourism group for a long time. In addition, Thomas Cook was already on the verge of insolvency once, in 2011, and had to pay off many debts for the rescue since then – the constant pressure of repayment was a burden. In addition, there were years of acquisitions of companies.

Then there was the hot summer and then the uncertainty surrounding Brexit, which simply led many Brits to stay at home instead of sitting in the holiday plane (Great Britain was an important sales market). In addition, according to the national aviation authority CAA, the travel group overslept the modernization of the industry.

Although Condor’s fleet is no longer quite modern, it can make a fresh start as a company. What many in the industry welcome and support:

The airline is systemically relevant for leisure travel.

Michael Buller, Chairman of the Internet Travel Sales Association (VIR)

Condor, Air Berlin and Germania

Even if one cannot compare these cases (see Condors positive results and Air Berlin and Germania’s losses), two highlights:

Let’s look back:

Germania Fluggesellschaft mbH, the fourth-largest airline to date, filed for bankruptcy on 4 February this year and immediately ceased flight operations. Other airlines then stepped in to bring the holidaymakers back to Germany.

Air Berlin, the second largest airline to date, filed for bankruptcy on 15 August 2017. And a federalstate guarantee. This meant it could be continued for a short time. The million-euro loan was repaid in full. The last instalment has now been repaid. (We had already reported in detail on Air Berlin.)

Condor, with its almost 5,000 jobs, is looking to the future. The fact that flight operations can continue with the guarantee for the six-month bridging loan was also welcomed by trade unionists and industry. The Condorians would like to express their heartfelt thanks to the German federal government and the government of the German federal state of Hesse for securing our future.

The era of package tourism

The future in the holiday regions and important Cook destinations such as Spain, Greece, Portugal and Tunisia has become more uncertain due to the Thomas Cook insolvency. “This is an earthquake measuring seven on the Richter scale, and the tsunami is still to come,” says the President of the Cretan Tourism Association.

The tourism group brought millions of customers to hotels and package tours around the world. And in the last few months, some hotels have probably not paid any more. One of the unacceptable consequences: Some hoteliers even go so far as to bother Thomas Cook holidaymakers with paying their current stay on site again – before they can depart – for fear of non-payment in exceptional cases.

Many journeys are now a thing of the past: All booked journeys with a starting date up to 31 October had to be cancelled by the German Thomas Cook.

In 1855, Thomas Cook organised the first European tour for British tourists. This marked the beginning of the era of package tourism.

by Reiner Hertl

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