The former Thomas Cook chief executive was convinced to the last that the company could be saved. He spoke to Ian Taylor
The biggest failure in the industry’s history – the loss of 9,000 jobs, the need to repatriate 150,000 customers and refund 800,000 more – is not a legacy anyone would choose. He says: “It’s devastating. It’s awful. It’s sad. It was for me almost unimaginable. I feel awful for my colleagues, for the suppliers, for our customers who have to wait for their money.”
I put it to him that, at bottom, the company was brought down by its debt. Fankhauser says: “When I came to the UK I said, ‘If we turn around the UK, we turn around the group’. I knew about the debt. The aim was to generate enough operating profit to pay down the debt. We managed it one year. We were not fast enough.”
Then, he says: “It becomes a vicious circle – the more debt, the more servicing costs, the more refinancing costs. It hindered how fast we could be. Imagine we could have invested even half [what it cost to service the debt].”
As it was, Cook had to carry three million customers a year to make the £170 million to service its debt.
Fankhauser notes: “People say we should have radically closed shops. When I started, we had more than 1,200. When I finished we had 580.” But he concedes they looked tired, adding: “We did not have the money to refurbish them.”
Closing shops was not straightforward. “We had a presence on the [UK] high street that was still good for 40% of the seats on our airline,” says Fankhauser.
He ponders: “What could we have done better? We had a strategy, but we could not do it fast enough. We built up Cook’s Club and Casa Cook hotels and our own hotel management company. We set up a hotel investment fund of £150 million. But it took too long. We could not build the brands to get the scale.
“If I could do it again, I would be more brutal – we were not fast enough, not radical enough. It’s difficult to move an elephant, [especially] when you are debt-loaded. Before I could invest, I had to pay the debt.”
‘The debt burden really bites’
Fankhauser suggests Cook also suffered ill fortune, saying: “We had not good luck. In 2016 there were the terror attacks. We made a massive shift [from the eastern Med to the West]. In 2017 we were confident – we said we would accelerate the strategy.
“In the first half of 2018, we were 12% better booked [year on year]. Then the heatwave came. We could not find a response. We could not change capacity, so we had a bad year and then the debt burden really bites. We had two profit warnings [in September and November 2018]. Our numbers were lower and we had a reallocation [of exceptional items] and that had a negative impact on our [results] guidance.”
The planned Brexit date, at the end of March 2019, also hung over the sector at that point.
“Through October, November, December we saw it [the market] getting difficult,” he says. “When we came back after Christmas  we said, ‘We need structural change’.”
In February, the board announced “a review” of the group’s airline, putting it up for sale. Fankhauser says: “We had prepared the airline [for sale]. It had its own profit and loss [account] and was a separate company for two years.”
His initial thinking in separating the airline had been to “make others think about airline consolidation”. But it did not happen.
He says now: “It could be I tested the market too long, but I wanted to be sure the [tour operator] business was working without an airline.” By the beginning of this year, he says: “We knew it was going to work.”
The airline attracted several offers. “There was really good interest,” says Fankhauser. But amid this interest, the extent of overcapacity among Europe’s carriers also became apparent.
Fankhauser says: “Everyone came out with a profit warning, even easyJet. Eurowings [the Lufthansa subsidiary] had a disaster with its results.
“We saw none of the alternatives [the offers] giving us a solution that would work.”
To make matters worse, in May: “We had a goodwill write-down of £1.1 billion.” This saw Cook report disastrous half-year results, inflated to £1.45 billion by the “goodwill impairment” on the MyTravel business Thomas Cook had acquired 12 years before.
He explains: “The £1.1 billion in goodwill had been tested every year [by Cook’s auditors]. But in a deteriorating market, we had to write it off. We discussed, ‘Do we write off one-quarter, a half?’ I said, ‘Write it all off. Get rid of it.’”
The company also announced its banks had agreed a new £300 million credit facility from October, conditional on selling the airline. But it was the headline losses which dominated media reports – albeit that the £1.1 billion “was a paper loss”. He says: “When you are not in a good position, it becomes difficult.”
Fosun was a ‘good solution’
Unable to sell the airline for the amount Cook needed, Fankhauser says: “We went for a recapitalisation.”
Chinese group Fosun, already Thomas Cook’s leading shareholder and joint-venture partner, agreed to take a majority stake in the business for £450 million, with the airline separated off and majority control of the carrier acquired by the banks and bondholders in return for £300 million and a debt-for-equity swap.
Fankhauser recalls: “I went to China to convince [Fosun chairman] Guo Guangchang that it was a good solution for him, and the banks agreed.”
It was an elegant deal in the circumstances, capable of resolving many of Cook’s problems.
The deal needed completing by September. But talks dragged on. He says: “It was a huge transaction, a hugely complex process. A hell of a lot of partners needed to agree. We needed not only the banks, we needed the bond providers, the credit card providers, the merchant acquirers, each with financial advisors and consultants, and the CAA. We kept them all informed of our cash position.
“It was complicated – that is why it took so long. We were working round the clock from May.”
He insists: “It was really a good plan, but it was all public. You get pressure in the media, you get pressure from suppliers, tighter payment terms, credit card companies covering their exposure by withholding payments, banks tightening their payments position. That led us and our financial advisors to say, ‘We don’t need £750 million, we need £900 million’.
“We made good progress. At the end of August, we had substantive agreement on the key commercial terms.”
But as August gave way to September, the combination of debt, demands for upfront payments and withholding of incoming funds tightened around Thomas Cook like a noose.
Fankhauser says: “We were fighting to the end. We explored every avenue, selling the Nordic business, selling the German business.”
At the end, the banks sought an additional £200 million credit guarantee. Fankhauser says: “We asked the government [for a guarantee].”
The government declined.
He notes: “[Cook’s German airline] Condor got a loan from the German government. I did not ask for that. If I had, it would have been for less [than Condor].”
Fankhauser insists: “I was convinced we could succeed. The failure is devastating for everyone. I feel responsible.”
‘We explored everything’
Why did the company go into liquidation rather than administration, I ask, suggesting it might have been better to fold earlier to avoid this outcome?
He says: “The directors explored everything. When the deal fell apart, we could no longer trade because there were no assets. The conditions to go into administration were not there any more.”
Wasn’t the debt the overriding problem, regardless of setbacks such as the 2018 heatwave? Fankhauser acknowledges: “Without the debt problem, probably the heatwave would not have knocked us off course. [But] in early 2018 we were in an excellent position. I had never been in a better booking position.”
Now the company’s collapse faces scrutiny by regulators and MPs. Fankhauser insists he welcomes the scrutiny, saying: “I have to go before the [Commons] select committee. I wrote to [chair of the committee] Rachel Reeves to say she has my support.”
He also appears unfazed by the Financial Reporting Council’s (FRC) examination of Cook’s auditors. He says: “The FRC investigation is standard when a public company fails. I’m happy that we will get transparency. Hopefully, things will become more fact-based.”
Fankhauser says he accepts criticism of his salary and bonus. His earnings over almost five years have been widely reported as £8.4 million. In fact, he was paid £4.3 million. The other £4.1 million was in shares that were lost in the collapse. The Financial Times noted his earnings were close to “the median pay for a FTSE 250 CEO over the past five years”.
Yet he says: “The figure is massive, I agree.” He points out: “I did not pay myself. Half of it, I lost in shares. I never sold one share. But I agree, it’s a massive figure.”
The figures were touted again in interviews he granted two newspapers at the end of September. Asked why he gave the interviews so soon after the collapse, Fankhauser says: “I didn’t want everyone talking about us and we did not have a voice. I did not want to hide.”
He lights up when I ask about the reaction to Cook’s failure. “The CAA has done a great job,” he says, “and I’m really happy for that. The solidarity in the industry is breathtaking.
“I’m hugely grateful that all our competitors care so much about our people. We had such great people, so passionate. It’s heartbreaking.”
I point out he has refrained from apportioning any blame to others. He says: “The blame game does not help. I’m just terribly sorry.”
Thomas Cook: 12 years to collapse
2007: Thomas Cook merges with MyTravel (Airtours); lists on London Stock Exchange
2008: Global financial crash. XL Leisure Group fails
2009: Recession; UK outbound travel numbers fall 20% from 2008 to 2010
2011: Cook takes over The Co-operative Travel, giving it 1,200-plus shops (July); issues third profit warning in 12 months (July); share price plummets; chief executive Manny Fontenla-Novoa resigns (August); new chairman Frank Meysman appointed (September); shares end year at 14p
2012: Meysman rejects £400 million rescue bid (March); Cook secures £1.4 billion refinancing (May); Harriet Green appointed chief executive (July); Cook reports £378 million loss
2013: Cook reports first operating profit in three years but overall loss still £283 million
2014: Green leaves abruptly; Peter Fankhauser takes over (November); £158 million full-year loss
2015: Fosun acquires 5% stake (March); beach massacre in Tunisia forces UK operators to withdraw (June); Cook reports £19 million profit
2016: Cook switches 1.2 million seats from Turkey to western Med; reports £205 million operating profit; pays shareholders first dividend in five years
2018: Group issues two profit warnings, blaming summer heatwave (September) and reclassification of ‘exceptional items’ (November)
2019: Cook puts airline up for sale (February); reports half-year loss of £1.45 billion after £1.1 billion write-down of ‘goodwill’ on MyTravel business (May); announces agreement in principle on takeover by Fosun, banks and bondholders, eradicating £1.6 billion debt (July); takeover value rises to £900 billion plus debt (August); Cook goes into liquidation after banks demand additional £200 million credit guarantee (September 23)
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