Thomas Cooks Problems In Recession Business Essay Example
Thomas Cooks Problems In Recession Business Essay Example

Thomas Cooks Problems In Recession Business Essay Example

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  • Pages: 9 (2441 words)
  • Published: August 30, 2017
  • Type: Research Paper
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Thomas Cook Plc. is a travel and touristry company that was initially established in 1841 by an English man named Thomas Cook. In 1855, the company expanded its operations internationally, and Thomas Cook organized his first group trip from Harwich to Antwerp, continuing onwards to Brussels and various European cities, including Paris. In 1865, an office for Thomas Cook was inaugurated on Swift Street in London.

In 1873, Thomas Cook and his son established a new headquarters in Ludgate Circus, London. It was during this time that they also published the first edition of Cook's Continental timetables and tourist guides. Thomas Cook and Son became the first company in the world to offer pleasure tours by air in 1919. Currently headquartered in Peterborough, UK, the company employs approximately 10,000 individuals in the UK alone and has a global workforce of 31,000.

It possesses 93 aircrafts

...

and operates in 21 countries, with 86 hotels and resorts. The company's network includes 3400 mercantile establishments worldwide, both franchised and company owned. Its market value is ?8.8 billion, and it serves 22.3 million customers globally (Thomas Cook, 2009 A). Following its acquisition of my travel, the board of managers now consists of representatives from both companies, led by non-executive president Michel Beckett.

Thomas Cook's board of managers includes 8 members, with 4 being non-executive managers who oversee each commission. The company's vision statement is "We go farther to make dreams come true". According to the 2008 annual report, Thomas Cook aims to strengthen its primary mainstream business and also invest in independent travel, financial services, and emerging markets.

This is a public company and its goals are:

  • To engage in general commercial
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activities.

  • To provide various services.
  • To lend money, provide credit, and financial adjustment to individuals, as well as deposit money with individuals.
  • To invest the company's money in investments, including holding, selling, or trading investments or currencies or other financial assets.
  • To enter into agreements with governments, authorities, or individuals and obtain legislation, orders, rights, privileges, franchises, or grants from them.
  • To borrow money and raise funds by accepting deposits or securing/discharging debts or obligations through any means. Etc.
  • The consequences of a recession vary among different people. However, Wessels (2000) explains that a recession primarily occurs when actual output declines for two consecutive quarters. It can be caused by either a decrease in production at its potential level or a decrease in prospective levels.

    Monetary economists argue that a sudden decrease in the money supply is a major cause of recession. During a recession, people tend to save money instead of spending it, resulting in reduced expenditure and lower production levels. According to Singh et al.(2009), a recession is technically defined as two consecutive quarters of economic decline. In the financial dictionary, recession is described as a significant slowdown in a country's economy.

    The impact of recession on the travel and tourism industry in the UK can be summarized as follows:
    - An article by Independent (2008) suggests that the recession had a relatively positive effect on the UK's travel industry because more people opted for short trips to local destinations, which benefited the local tourism market.
    - BBC (Nov.2009) quotes Caroline Bremner, the global travel and tourism director, who acknowledges that 2009 was challenging for the industry but predicts slow recovery in

    2010.
    - The World Travel Market report (2009) highlights how severely affected the travel industry has been by the recession and its ongoing struggle to overcome this difficult situation. Job losses and limited access to credit have greatly impacted the tourism sector.
    - Expectations indicate that around 8% of global rivals will exit from the travel market, with declines expected for approximately 16% of hotels and 14% of airline businesses.The travel industry has responded to the crisis caused by Harmon by implementing a new strategy, resulting in a significant drop in global travel revenues of around 40%. In 2009, vacation packages experienced considerable price reductions of approximately 20-30% compared to 2008 due to significant environmental changes.

    In 2009, Marriot and Starwood offered promotional price reductions of up to 50%. They were targeting a new market called "FUNEMPLOYED", which refers to individuals who have lost their jobs and are financially struggling but have plenty of free time. By offering significant discounts to these individuals, the companies hoped to encourage them to take advantage of the offers without hesitation. They provided promotional offers of up to 15% on vacation packages for unemployed individuals.

    The outlook for the travel industry's growth in the next few years can be summarized by the following figures (Figure 1.0). Thomas Cook faced a significant problem during the recession when one of its partners, "Arcandor," declared bankruptcy in June 2009. According to the Guardian UK (June 27th, 2009), Arcandor, which owned 52% of Thomas Cook's shares in Germany, filed for bankruptcy. This news was shocking for Thomas Cook's reputation, but the company stated that it had no impact on its customers. Additionally, Thomas Cook encountered difficulties

    with cash flow as they were receiving money from customers at the last minute.

    In other words, people were booking vacations at the last minute, which made it difficult for the company to manage their daily cash flow (The Finance Director, 2009).

    Operational review: Thomas Cook is one of the world's leading travel groups, with sales of ?8.8 billion, 22.3 million customers worldwide, 31,000 employees, 93 aircrafts, 3400 owned and franchised establishments, 86 hotels and resort properties, and operations in 21 countries. In the UK alone, they have 6.3 million passengers, 807 establishments, and 42 aircrafts (Thomas Cook annual report 2008).

    Strategy adopted by Thomas Cook:

    • During times of recession, Thomas Cook practiced cost leadership. According to Crums and Goldberg (1998), cost leadership has three main components:
    • The quality of the product should meet the desires of the target market, without exceeding consumer expectations or falling below expected value for money. High quality cannot be offered in cost leadership.
    • Another important factor of cost leadership is that it must maintain reasonable profit margins. Sometimes markets reduce their profit margins too much in order to stay competitive, leading to losses.
    • The company should strive to maintain its position as the least cost supplier in the market. In order to respond quickly and maintain its position, the company should be prepared to lower prices if its competitors do so. Thomas Cook adopted a combination of classical and human relations approaches during the recession. According to Taylor, Weber, and Fayol (1856-1920), the classical approach aims to maximize productivity and efficiency by reducing costs, dividing tasks, and asserting control over resources. By implementing the classical approach, Thomas Cook was able

    to become a cost leader in the market.

    According to Porter (1980), companies implement cost leadership by using superior operational practices, advanced technology, or economies of scale. Thomas cook demonstrated their preparedness by making policies that had an impact on the market during a recession, showing their capability for leadership. They also have good management skills that enabled them to adopt cost leadership, which was the most suitable strategy for a travel administration during a recession. Additionally, they have also shown respect for their employees, indicating their interest in a contingency approach. "We are also very proud of our people at all levels within the Group."

    Our employees embody our company values and constantly strive to understand our clients' needs and fulfill their travel and holiday dreams. We recognize the importance of their achievements, diversity, and experience in our flexible approach and ongoing success" (Thomas Cook, Annual Report 2008, p 7). Additionally, we value our employees' adaptability to environmental changes and their contribution to cost-cutting measures that enable us to be a market leader. While implementing a classical approach for efficient operations, we also prioritize human relation initiatives to foster a harmonious work environment within the group.

    According to Gane (2007), the human relation attack argues that administrations are self-contained entities that are not influenced by the external environment. The administration in question decided to adopt a new scheme that promotes a luxurious lifestyle. However, if the environment does not support it, they may need to avoid travel and tourism. Their decision to adopt a competitive force model reflects this rationale.

    The recession and external changes have prevented the group from acting independently. According to Porter's Competitive Force Model,

    organizations must adapt their strategies in response to these external changes. Thomas Cook, aware of the recession and swine flu, recognized the impact these events had on their thinking and sales. The CEO highlighted this during a discussion on Thomas Cook's quarterly earnings, stating, "This is particularly pleasing as it comes despite the worldwide recession and the financial impact of the swine flu outbreak" (Yahoo news 2009).

    Thomas Cook made changes during the recession that helped them maintain a competitive edge over smaller competitors. The company merged with My Travel in 2007, which allowed them to effectively and efficiently navigate through the difficult economic climate. By offering inexpensive vacation packages, Thomas Cook became a cost leader in the market. They also effectively managed their cash flow and balance sheet, according to reports from Financial Times (2009), the annual report (2008), and The Finance Director (2009).

    According to an article from the fiscal times dated 30th Nov. (2009), Thomas Cook raised their prices during the recession. This decision was made as a result of other companies in the vacation industry going bankrupt. Consequently, consumers had difficulty finding affordable vacation deals. (FT, 30th Nov.)

    According to Thomas Cook (2009), the stakeholders of the company are:

    • Employees
    • Customers
    • Investors
    • Suppliers
    • Local communities - in our beginning states and in the destinations where we operate
    • Industry partners
    • Governments - in our beginning states and in the destinations where we operate
    • Non-Governmental Organizations
    • Experts in responsible travel

    Customers were the most affected stakeholders during the company's changes because all the alterations in the company's cost leadership were due to them. They have the prime

    power in the company as it relies on them to generate profits. Customers gladly accepted the company's cost leadership and made the organization profitable during recessive times.

    Suppliers play a crucial role in the company's success. CEO Thomas Cook stated, "Our success in leveraging our purchasing power and restructuring to minimize our cost base is helping to maintain our industry-leading margins" (Interim management report, March 2009).

    The providers have been instructed to adapt to the new market conditions and minimize costs as much as possible. The company is utilizing its purchasing power to manage the expenses associated with the changes, which account for over 30% of revenue. Despite currency fluctuations, negotiations with our providers are expected to result in prices no higher than last year's levels across the Group this year. CEO Thomas Cook (annual report 2008, p 14) expresses confidence in this. This indicates that the buyers of the company have accepted the changes. However, Thomas Cook Group is facing the challenge of developing an effective working capital management strategy during a recession, especially after integrating with My Travel in 2007.

    However, according to moving group CFO Ludger Heuberg, the difficult work has paid off as the alteration procedure carried out by Thomas Cook took into account the importance of environmental factors (The Finance Director, 2009). The recession, which is the most dangerous enemy of the travel and tourism industry, required an immediate response from management. This external factor was impacting the business that operated in satisfactory conditions. Heuberg, the head of finance management, stated that managing the company's finances was not very difficult because customers paid money in advance through deposits and advanced bookings.

    The company's conditions

    were made more flexible to pay providers, but the recession caused a change. People started booking later than usual during uncertain times like the current recession, according to Heuberg. As a result, prepayments became shorter and lasted for a shorter period of time. Typically, January is the busiest month for booking summer trips. However, this year it was March and April, so prepayments only lasted for three to four months instead of six. These changes in customer behavior made the company rethink their approach to capital management.

    Currently, the company is experiencing a more direct impact on its capital direction due to changes in the environment along with financial constraints. According to Mr. Heuberg, "Previously, the company primarily focused on achieving profit goals. However, we have now introduced a system that considers working capital, including specific figures such as deposits and payments from customers, as well as payments and deposits to suppliers. We also consider any further disruptions to these figures as important factors."

    Furthermore, the fillip marks will be used to tie them together, resulting in stricter coverage and a more effective attack to the scene. This is not just a forecast that constantly changes (The Finance Director, 2009). The focus has now shifted to the individuals working in the finance department. In the past, the business only considered revenues, expenses, and turnover as the main concerns, while the balance sheet and cash flow were solely for the finance department. However, due to the recession, everyone now had to concentrate on every aspect of the business, especially finances. To improve, it was necessary to start by enhancing the equipment within the finance department itself, in order

    to set an example for the rest of the business. This application was implemented during the recession.

    In terms of improvements, Thomas Cook successfully navigated the recession and even experienced growth. Their annual report from 2008 projects an increase in net profits for 2010. Additionally, they merged with my travel to become one of the largest travel companies globally and among the top in Europe. However, it is worth noting that throughout these changes, their focus remained solely on products and services in the travel industry.

    According to Reeves and Deimler (2009), finance and banking present excellent opportunities during a recession. Solid banking institutions can generate substantial profits by implementing effective strategies during challenging times. This is because, during such periods, there are usually only a few lenders in the market but an increase in borrowers, rendering the market quite attractive. It would have been wise for Thomas Cook to venture into banking. Instead, in the travel industry, Thomas Cook focused solely on existing destinations and neglected to introduce any new locations in the emerging world. They could have expanded their destinations to include impoverished countries such as Pakistan, Egypt, Syria, and Zimbabwe.

    These states are unfortunate yet practical for expenses to travelers. Individuals can afford this market more easily compared to the traditional one, as it is inexpensive and highly effective during recessions. They could have initiated a bus company connecting all of Europe, making travel more affordable and adventurous, considering that people are financially constrained but have ample time during recessions. They may not have extra money to spare, but they can be flexible with their time.

    Bus service is a cost-effective and appealing way to expand

    the travel and tourism industry.

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