Why has Thomas Cook fallen so badly, with the City marking the shares so much lower than the size of the downgrade?
Simple: the City believes there is more bad news to come. History shows that when tour operators start downgrading there always is more to come - often significantly more, as people forget just how operationally geared these companies are.
Things have improved since the wild times of the 1980s and 1990s when companies were boom and bust, but it has not all changed.
In fairness, the macro environment is not making life easy. Thomas Cook is sailing into a strong headwind. Europe is on the verge of collapse yet its currency is absurdly strong against sterling, making costs for a British consumer on holiday in Europe too high. The oil price is hurting as Thomas Cook is not fully hedged. This will probably get worse.
Perhaps worst of all, we know the British consumer is feeling the pinch and really does have to cut back on spending, even on holidays. The only area of the holiday market that will escape this is the top level of expensive holidays. I’m afraid the richer population have a different life.
But I would argue the real problem is something I highlighted in Travel Weekly three to four years ago in an article, “Deal or wrong deal”, which won me no friends in senior management, but sadly looks to be true. The merger of Thomas Cook with Airtours (MyTravel) was the wrong deal and now they are paying the price.
Thomas Cook should have merged with First Choice, but rushed to grab a deal which it should not have done. First Choice reacted in defence, but was able to merge with a good business and came out better off. Thomas Cook should have been patient. Now staff and shareholders will reap the results.
Can it be fixed? Well, we know the environment has changed dramatically and now the tour operators are competing with low cost airlines and online players. Thomas Cook has one major asset: a great brand name. But it is a name that suggests a more adventurous and upmarket product, and that is where the profit is.
Maybe the time has come to break the company up and sell the high-volume, low-margin businesses to someone who can make a profit on it and refocus on what Thomas Cook stands for. It would be a much smaller company, but potentially far more valuable.
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