The Thomas Cook Group which owns the airline of the same name and the German holiday airline Condor, as well as an extensive network of sole provider travel agencies in the UK and Germany, has posted two profit warnings and then released figures showing things didn’t look too bad – for a normal company, and Thomas Cook isn’t that. However the share price keeps sliding and that’s a crucial factor in how its future may unfold.
From the rosy press release the group issued you’d think it was just a normal day, a glowing report – and that’s exactly what they want investors and the travelling public to think.
You’d probably say profits of $150mUSD/£129m would be a good thing, but European ATC and other issues cost it over £100m. And it needs every penny to maintain its operations.
Thomas Cook’s twin airlines have effectively been made one, despite dual branding. Many German aircraft operated in the UK during the summer and vice versa. However, while the overall airline and holiday group are getting by, its debt level is vast, over £1.1 billion and growing.
The airlines’ fleet comprises 100 aircraft, with a mix of Airbus A320s, A321s and A330-200s, as well as Boeing 757-300s and 767-300ERs.
The storm is however, only just around the corner. The travel group, along with its airlines and every other UK airline, has no idea what will happen after the 29th March – the same day the Summer timetables become active, and two weeks later the crucial Easter holidays.
If there was any airline that Brexit could destroy almost over night, Thomas Cook is it.
Its entire model is based around flying UK holiday makers to Europe’s resorts – from Spain to Greece, Italy, Cyprus and Croatia, (all EU members) as well as beyond to Turkey, Tunisia and Egypt. It does have American destinations, but they’re relatively minor.
It also faces ever-growing competition from a resurgent Jet2 which is spreading around the UK, a predatory RyanAir, easyJet and Tui. And we know what they can be like when the smell blood. Just look at Monarch.
So if there is no aviation deal on the 29th March – and right now the chances of that are exceptionally high, one of the UK’s busiest holiday companies, along with Jet2, Tui and others, will find it can’t fly anyone anywhere.
That threat is weighing heavily on the company share price. Why does that matter? because if it has less value, its creditors have no asset to assess – if investors think it has no value why would you lend it money to keep going, especially when it’s already in debt to roughly four times its material assets?
Thomas Cook has often been described as too big to fail – but it won’t get government money if it does, it’s not going to bailed out, but its loss could be a catalyst to a wider financial crisis, as banks take hits on its debt, and other less fragile airlines and travel groups will start to feel very, very vulnerable. Especially if Britain crashes out of Europe.
In the meantime, the biggest danger to Thomas Cook is what everyone in the UK feels right now, fed up, tired of Brexit and tired of not knowing what comes next.
The question is can it survive a winter of uncertainty, low bookings and fluctuating currency? Especially when the best way for stock market predators to make money from it is bet against it and see it fail?