Tour operator Thomas Cook in financial trouble

AP News
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Posted: Nov 22, 2011 1:45 PM
Tour operator Thomas Cook in financial trouble

Fears rose over the survival of venerable British tour operator Thomas Cook after financial problems worsened Tuesday for the company that took more than 22 million people on holiday in the latest year.

Shares in Europe's second-largest tour operator sunk 75 percent of their already depressed value after Thomas Cook said it was seeking new agreements with its main creditors. That announcement came barely a month after the company said it had negotiated new funding arrangements to carry it through the slow winter months.

The company insisted that flights would leave as usual and that it was taking new bookings, but Britons who bought vacations through the firm were worried.

"(I'm) praying it's going to be all right ... but I'm not confident," said Jamila Juma-Ware, 27, who had booked a holiday in Tenerife in the next three weeks for herself and her mother.

Several small British travel firms have gone under since the global economic crisis hit in 2008, but Thomas Cook is an industry giant and a fixture of Britain's main streets.

"There are a lot of small independent travel agents around here, but I said I'd rather just book it through someone like Thomas Cook because they're big and there's more of a guarantee they won't go bust," Juma-Ware said. "And then this week this happens. "

Thomas Cook is, like many airlines and tour operators, suffering from weak consumer demand as Europe's financial crisis has people worried about their jobs.

Unrest in Tunisia _ normally the top winter destination for French travelers _ and Egypt, flooding in Bangkok and disappointing sales in Russia have all added to the pressure on the company.

Analysts said the financial troubles could scare away customers, darkening the firm's prospects even more.

"Legitimate questions will be asked as to whether Thomas Cook can survive long-term," said James Hollins, analyst at Evolution Securities. He added that he believed the company could pull through on the strength of businesses outside Britain, but "a more flexible financial structure and massive turnaround are required."

Thomas Cook Group PLC shares closed down 75 percent in London trading.

Thomas Cook was due to report annual earnings for 2010-11 on Thursday, but it has put that off indefinitely "as a result of deterioration of trading in some areas of the business, and of its cash and liquidity position since its year end."

Sam Weihagen, Thomas Cook's interim chief executive, insisted it was business as usual: "Flights are leaving on schedule, shops are open and we're taking bookings."

Weihagen said people who booked package holidays with the firm would be protected by the Air Travel Organizers' Licensing insurance program, which is funded by contributions from travel companies. However, those who book only flights are advised to buy their own travel insurance.

Thomas Cook has previously announced plans to reduce its fleet of 41 aircraft to 35, and it hopes to raise 200 million pounds ($312 million) by selling assets including its stake in Britain's part-privatized air traffic control service.

Wyn Ellis, analyst at Numis Securities, said Thomas Cook's announcement could frighten new customers and alarm suppliers. The company, he said, "faces a difficult near-term future which could lead to significant loss of market share."

The news upset some prospective travelers near its shop in London's St. James neighborhood.

Tony Wright, 64, said he's had "nothing but good experiences" with the company and would not hesitate to use Thomas Cook again.

"We were devastated to hear the news this morning and we hope its not as bad as it sounds," he said.

Others were disappointed that the company's airfares had not dropped. Simon Ash visited the branch on Tuesday, hoping that the company's financial woes and a lack of tourist interest in Egypt because of unrest could help him find a cheap ticket to Cairo. He came away empty-handed.

"The prices they're giving me are not as good as the ones I'm finding on the Internet," he said.

Nadejda Popova, a tourism industry analyst at Euromonitor, said Thomas Cook's "great brand" identity could help it survive, especially because package holidays remain popular with travelers.

"We talk about the death of the package holiday, but we haven't completely seen (it)," she said. In uncertain times people "want the protection that comes with a package holiday."

The company takes its name from the cabinetmaker Thomas Cook, who had a flash of inspiration while walking to a temperance meeting in 1841 to use the railways to help promote abstinence from alcohol. Cook's first venture was to charter a train that carried about 500 passengers in open coaches on a 12-mile round trip.

"Thus was struck the keynote of my excursions, and the social idea grew up on me," Cook wrote.

He organized more trips for temperance societies and Sunday schools. He took his business a step further in 1845 by arranging a trip to Liverpool.

The International Exhibition in Paris in 1855 inspired Cook to organize a trip to the continent. Ten years later, he was organizing rail tours in North America.

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Associated Press Writers Jill Lawless and Cassandra Vinograd contributed to this report.