Ian Taylor examines the aftermath of the travel giant’s collapse
Will the failure wipe out the Air Travel Trust fund?
Yes, in the sense that it will largely empty the fund. No, in the sense that it should not exhaust the fund.
CAA chair Dame Deirdre Hutton conceded the failure will “clean out the trust” and there is widespread industry concern that this will lead to a rise in the Atol Protection Contribution (APC) levied on holiday bookings – currently at £2.50 per person.
Abta chief executive Mark Tanzer made clear the association would resist any increase to the APC, telling the Travel Convention: “The failure of Thomas Cook has made a big dent in the Air Travel Trust fund.
“The levy was £1 then went to £2.50 and we would very much resist it changing beyond that.”
MP Luke Pollard, former Abta head of public affairs, also raised the issue, asking: “Will the £2.50 Atol Protection Contribution be enough?”
And a senior industry source told Travel Weekly: “There is the question of what the insurance [which backs up the fund] will cost and what happens to the APC.
“Remember 50p became £1 became £2.50 after the collapse of XL Leisure in 2008.”
The source insisted: “The CAA is going to have to decide with the Department for Transport about immediate provision of the Air Travel Trust.
“Contributions are linked to when holidays are sold, so if the government/CAA wants to catch the January peak booking period it would need to be quick.”
However, Hutton dismissed these fears, insisting the CAA has “no intention” of raising the £2.50 APC in the wake of Cook’s collapse.
She told Travel Weekly: “There is no intention to do that. It has not been discussed.”
Hutton said: “[The collapse] is not going to make the trust insolvent. We have a borrowing facility. My expectation is it will continue as it is.
“That does not mean that, if there is a series of failures, we won’t have to look at it.”
She denied the repatriation and refund of Cook customers would cost £600 million as widely reported, saying: “I don’t know where that figure came from.
“We estimate the cost of repatriation at £100 million, 60% of which will be paid by Atol. We estimate the Atol pay-outs [on refunds] at £420 million.”
What about the government review of airline failures?
Transport secretary Grant Shapps promised a review of arrangements when an airline fails in a statement to Parliament in the week following the collapse.
His statement was the same, almost word for word, as that given by his predecessor as transport secretary Chris Grayling following the collapse of Monarch in October 2017.
Grayling ordered an Airline Insolvency Review under a committee chaired by Peter Bucks. This reported in May this year. The government has yet to respond to its recommendations.
These boil down to a repatriation fund for all airline passengers paid for by airlines providing a bond or other security and backed by a levy, of up to 50p, on all outbound flights – plus a change to the UK’s airline insolvency rules to allow a failed carrier’s aircraft to be used for repatriation
Thomas Cook’s failure appears to make it more likely the government will now act.
Sources close to the Department for Transport suggest it will do so, but that Shapps is not convinced of the need for an all-flights levy and protection against the failure of all airlines.
< >What of Cook’s executives, directors and auditors?
Thomas Cook’s executives and directors won’t need to worry about money, but some will face a few uncomfortable moments in public.
Former chief executive Peter Fankhauser has borne the brunt of criticism for being at the controls when the company crashed and being paid a reported £8.4 million since 2014.
Almost half of this (£4.1 million) was in shares so not paid but lost in the liquidation.
Fankhauser will appear before the Commons select committee on business, energy and industrial strategy which begins its inquiry next week. No doubt this will produce some uncomfortable headlines and TV footage.
The Insolvency Service has been instructed by business secretary Andrea Leadsom to examine the conduct of Thomas Cook directors in the run-up to the collapse.
And the UK accountancy regulator, the Financial Reporting Council (FRC), is investigating Thomas Cook’s auditors, meaning major accountancy firms PwC, which signed off Cook’s accounts from 2008 to 2017, and EY which took over from PwC.
Cook has been rightly criticised for the way it reported exceptional charges and treated historic ‘goodwill’, including £1.1 billion in goodwill from its merger with MyTravel 12 years ago which it only removed in May.
However, this is not wildly aberrant behaviour among public companies – where ‘creative accounting’ is not unusual – or peculiar to travel. Just think of the collapsed construction and facilities management giant Carillion.
Such accounting practices are also not confined to listed companies which are at least subject to some scrutiny, albeit by auditors which work for the scrutinised businesses.
What of the impact on Abta?
Thomas Cook was one of Abta’s biggest members. The company’s subscriptions came to about 5% of the Abta total and it contributed additional funds in other ways.
However, the association appears relaxed about the loss of income. Thomas Cook paid its subscription in July, so Abta’s core income to June 2020 is unaffected.
Chief executive Mark Tanzer said Cook’s failure “will have an impact on subscriptions in the short term because of its size. But it depends on how the industry reconfigures. I’m not anticipating any long-term effect.”
A source added: “It’s not good news, but Abta has made a lot of changes over the last 10 years and has a much more diversified model [than in the past].”
Does Cook’s failure mark the end of the package holiday?
This widely repeated claim in the mainstream media is nonsense.
Jet2holidays is booming, easyJet Holidays is poised to launch for next summer and the UK’s largest independent online travel agent On the Beach is investing significant sums in boosting its package holiday sales.
Abta chief executive Mark Tanzer noted: “Thomas Cook did sell £9.5 billion worth of holidays. They were doing something right. Their sales were strong even in the last financial year.
“The story of Thomas Cook is not a story of a company selling a product no one was willing to buy.”
Alistair Rowland, Abta chairman, added: “The issues with Thomas Cook have been in play for at least 10 years.
“The idea the package holiday is dead because of online booking is entirely wrong otherwise Jet2 would not be selling four million package holidays a year, one third of them through agents.”
That view was backed by consumer research firm Mintel which reported this week: “The volume of overseas package holidays taken by UK residents continues to grow year-on-year.
“The number of overseas package holidays taken grew by 19% between 2013 and 2018 [and] Mintel predicts package-holiday market volume will grow by 1.4% in 2019, whereas the number of independently booked holidays will decline by 0.5%.”
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