THE WORLD’S oldest tour operator is looking for a place in the shade. Since September, when it announced the first of two consecutive profit warnings, Thomas Cook’s share price has fallen by nearly two-thirds. The British company, which sells flights, hotel rooms and tours to 20m holiday-makers, is saddled with £1.4bn ($1.8bn) in debt, three times its market value. IHS Markit, a data provider, estimates that 8% of its stock has been borrowed—typically a signal that short-sellers are circling.
Easter brought some solace, if only because Thomas Cook’s low valuation has made it an increasingly tempting takeover target. Its shares rose by 18% on April 23rd, after Sky News reported that Fosun, a Chinese conglomerate that is its largest shareholder, and two buy-out firms were interested in parts or the whole of the company.
Thomas Cook’s woes reflect broader malaise in the industry. On March 29th TUI, its Anglo-German arch-rival and the world’s biggest tourism group, issued a profit warning. Combined, the two companies account for two-thirds of the European package-holiday market.
Some of the problems are cyclical. Last year’s torrid summer convinced many Europeans to seek sunshine at home. The weak pound has dampened traditionally peripatetic Britons’ enthusiasm for travel. The grounding by authorities around the world of Boeing’s 737 MAX planes after two of them crashed could cost TUI, which owns 15 such aircraft, €300m ($336m).
But the companies must also grapple with structural changes. From 2015 to 2018 profits barely budged at TUI. Thomas Cook’s fell by 20%. Millennials prefer independent travel to package tours. Low-cost airlines and booking websites have made it easy for people to craft their own holiday, says Vitali Morgovski of Moody’s, a rating agency. Online platforms need no physical stores; Thomas Cook has 566 in Britain.
To repay its debts Thomas Cook wants to sell its airline business, itself pummelled by competition from low-cost carriers. It has some worthy airport slots but is on the block at the same time as other failing airlines, notes Richard Clarke of Bernstein, a research firm. It wants to bring more retail online and focus on higher-margin premium services. At least TUI has more hotels and a thriving cruise business, which generates a third of its profits. But its prospects hardly look sunny.