The package holiday firm Thomas Cook has ceased operations overnight after 178 years, leaving 600,000 travelers stranded around the world, including 150,000 British travelers who will be brought back home under the UK CAA’s ATOL program. It also left 21,000 people suddenly unemployed.
In a statement published on the Virgin website, Richard Branson said he was saddened by the demise of the long-standing travel company and by the effect Thomas Cook’s closure has had on the lives of its employees.
“It’s upsetting to see so many people lose their jobs and thousands of holidaymakers affected by disrupted travel,” he wrote. “Our wonderful teams at Virgin Atlantic will do all they can to find people jobs and bring stranded people home.”
Victim of Brexit
Branson also pointed to Brexit uncertainty as exacerbating the company’s troubles.
“The drop in the pound following the referendum has put even more pressure on the struggling business, which has been saddled with large debt for a number of years,” Branson wrote. “All of the travel industry costs are in dollars – for example fuel maintenance and airplane leasing. With the weaker pound, the cost of everything has skyrocketed. For Thomas Cook, this has proved terminal.”
Thomas Cook made a similar point in its financial filing this past May, saying Brexit uncertainty had contributed to its £1.5 billion ($1.86 billion) loss. The company’s CEO, Peter Fankhauser, also said the 2018 summer heat wave had contributed.
“The prolonged heatwave last summer and high prices in the Canaries reduced customer demand for winter sun, particularly in the Nordic region, while there is now little doubt that the Brexit process has led many UK customers to delay their holiday plans for this summer,” Fankhauser said.
Brexit or not, there have been some high-profile airline failures in Europe in recent years. The most recent was French budget airline Aigle Azure, in which David Neeleman is a stockholder. Another French budget airline, XL Airways, suspended ticket sales this past Friday and has reached out to Air France for help.
But the case of Thomas Cook is unique because it affects hundreds of thousands of travelers and thousands of employees; and raises questions whether Europeans are moving away from traditional package holidays and towards self-assembled budget adventures.
The end of the package holiday
Michael O’Leary pronounced package holidays dead in a conference in Copenhagen in 2016, in part because of the rise of digital platforms allowing holiday-makers greater options to put their own plans together.
“Sales of [traditional] package holidays have declined because what people are doing now is that there’s so much readily available low-fares and services that people go online and book their own accommodations,” O’Leary said. “That concept only existed 45 years ago because it was the only way you could get a cheap fare.”
Ryanair’s CMO Kenny Jacobs elaborated, “You’re seeing all of these digital businesses which are de-bundling the package holiday as we know it. There are a few exceptions: Some Germans will still walk to the high-street travel agent and buy the classic two-week holiday. And in Scandinavia there has been more of a tendency for package holidays..But the UK and Ireland are more like the American market, where people choose to package their own holidays.”
Thomas Cook’s business model, more akin to charter flights than commercial airline operations, did not allow the efficiencies of scale necessary for its airline operations to compete with the cost structure of low-cost giants like Ryanair and easyJet in Europe.
The collapse of Thomas Cook raises questions going forward about whether other similar package-model companies, like TUI, will find a way to work around this digital divide.
More planes on the market
The closure of Thomas Cook airlines does create an opportunity in the airframe market. According to ch-aviation fleet data, Thomas Cook Airlines UK operated 28 A321-200s and seven A330-200s. Thomas Cook Airlines Scandinavia operates eight A321-200s, one A330-200 and three A330-300s. Most of these aircraft were leased. The 737 MAX grounding creates demand for single-aisle aircraft and might make it easier to return these aircraft to service quickly, according to aviation analysts at Air Insight.
“Thomas Cook had a good fleet,” writes Air Insight founder, Addison Schonland, “The least attractive part of the Thomas Cook fleet, the A320s, are likely to be snapped up. The airline’s A321s are probably being eyed right now. These are in high demand as evidenced by how quickly Air Canada took over WOW’s A321s. The A330 fleet is also likely to find new employment as evidenced by the quick absorption of the Air Berlin A330s.”
Condor continues to fly
While Thomas Cook airlines UK and Thomas Cook Scandinavia have ceased operations, German operator Condor, Thomas Cook Airlines Balearics, and Thomas Cook Aviation (formerly Air Berlin Aviation), continue to fly, at least for now.
Condor is asking the German federal government for a €200 million ($220 million) bridge loan to sustain it.
Thomas Cook Scandinavia–which operates as Spies in Denmark–announced late on Monday evening that it had made arrangements to resume flight service starting on Tuesday, to help get stranded passengers back home. Spies CEO Jan Vendelbo told STANDBY.dk, “We deeply regret that so many of our guests have been affected by this and we will do our best to get our stranded guests home as soon as possible. We understand that this has created concern and inconvenience for those who have experienced it.”
These airlines will need to find new missions in the long term, either sustaining TUI–which already relied in part on Thomas Cook planes, leading to some of its own flight cancelations today–or in the charter and wet-lease markets.
But the likely long-term winners, as more of Europe’s travelers move to do-it-yourself holidays will be Europe’s well-established low-cost carriers, namely Ryanair and easyJet and Europe’s flagship airlines operating on sounder footing, including SAS, Lufthansa and IAG group carriers.
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I worked in aviation from 1994-2010 before turning my experience to writing about airlines and airports for leading industry and consumer publications in 2013. I’ve spent months in the hangars of airlines and aircraft manufacturers, dressed aircraft seats by hand, and worked with crew at training centres around the world. I’ve negotiated with airline CEOs and worked with buyers, engineers, leading design firms, suppliers and aircraft manufacturers on the launch of new programs. I was the executive responsible to international regulators on the approval of cabin equipment, with oversight of production facilities, product testing laboratories, a maintenance center, and a certified hazardous materials repair station. I even hold a patent for a military-spec life raft. Now, I translate “aviation speak” into English, breaking barriers of acronyms and jargon to make the beautiful business of flight easier to value. I also really, really love being on a plane—even in the middle seat.
Source: What Killed Thomas Cook? Brexit And Decline Of Package Holidays Undercut Venerable Travel Brand
There’s a massive effort to bring home more than half a million stranded travelers. They got stuck at airports and hotels around the world, as Thomas Cook, the world’s oldest travel company, suddenly shut down. Kris Van Cleave reports. Subscribe to the “CBS Evening News” Channel HERE: http://bit.ly/1S7Dhik
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With only one month left in 2018 it now appears almost certain that the average inflation-adjusted domestic round-trip air fare in America this year will be the lowest it has been in at least nine years.
Based on data and analysis from the U.S. Department of Transportation and Airlines for America, the major carriers’ trade association, the average domestic round-trip fare paid during the first of 2018 was $338, excluding ancillary fees, and $360 including those fees.
That’s 15.1% lower than the $398 that travelers paid, on average, in 2014 excluding ancillary fees, and 14.9% lower than the $423 they paid, on average in that same year when fees for ancillary services are included. The year 2014 turned out to be the costliest, on average, for domestic air travel year out of the last nine years.
Average U.S. domestic round-trip airfares since 2010Airlines for America/ U.S. DOT
The cheapest year for domestic air travel, on average, out of the previous eight years was 2017, when the average domestic round-trip fare, excluding ancillary fees was $347, and $370 with those fees. Those figures were both about 3% higher than the average domestic round-trip fare in the first half of this year.
All dollar figures in the data and analysis are inflation adjusted and stated in 2018 constant dollars.
The final calculation of the average domestic round-trip fare price for all of 2018 won’t be available until sometime next spring. But it is very unlikely – in fact, it’s almost statistically impossible – for the full-year 2018 average fare price to rise above the 2017 full-year average price. That’s the case for several reasons.
First, to push that much higher from the first half 2018 average fare price, second half 2018 fares prices would have to have been significantly, even painfully higher throughout the second half of this year. But that has not been the case.
Only this week has Southwest been able to push through a modest fare hike that other carriers followed. Southwest is a long-established discount carrier that now struggles with higher costs than traditionally was the case. Still, it tends to set the floor price for fares charged by the nation’s largest, more conventional airlines. Southwest raised its prices $2 to $5 each way on about 90,000 listed fares. American, Delta, United, Alaska, JetBlue and Hawaiian airlines all followed suit.
That increase was welcomed by analysts and investors who had been complaining for months that airlines’ fares were too low this year because the industry had added more capacity than consumer demand could fill without airlines resorting to increased price discounting. But even that new, modest price increase isn’t big enough, nor will it be in effect long enough for it to significantly alter 2018’s downward pricing trend line.
Airline profits in 2018 also are expected to be down from 2017 and from the peak year of 2015, when the group as a whole earned an unprecedented $23.7 billion net profit and an operating profit of $26.8 billion. Last year U.S. airlines reported combined operating profits of $20.3 billion and combined net profits of $14 billion.
Through the first nine months of this year, U.S. airlines saw fuel prices move up 50% from the previous year, only to fall precipitously again over the last six weeks.
The fact that U.S. air travelers are getting a relatively good deal on the average domestic fare prices paid this year does not mean that every passenger is scoring a great deal.
The calculation of the average fare price includes a large number of factors that impact the percentage of seats sold at various prices. Business travelers and leisure travelers willing to spend extra for comfort frequently end up paying twice or three times more than the price of the average fare. Conversely, those willing to forego “extras” or even service features that used to be considered basic (like the ability to choose a seat or carry on a bag for free) frequently pay half, or even only a third of the “average” fare price.
Then there are business travelers who pay somewhat lower fares for full service treatment because the big corporations for which they work negotiate substantial net discounts based on the high volume of business travelers they place a particular carriers’ flights. Then there are those who travel for free, or virtually free, by using mileage points earned as members of carriers’ frequent flier programs.
Price-sensitive travelers tend to make up a much greater share of passengers on board any given flight. But the wide gap in prices paid by the most and the least price-sensitive travelers can push the average price up even though relatively few travelers pay those higher fares.
Not surprisingly, data from A4A, the carriers’ trade association, illuminates the effect that different carriers’ marketing approaches can have on the average prices paid by their passengers.
U.S. Carriers’ Average Domestic Round-trip Fares* – 1st Half 2018
Carrier Fare Market Share
Southwest $261.52 23.3%
American $411.63 19.6%
Delta $413.01 18.8%
United $428.70 14.4%
Alaska $320.78 6.3%
JetBlue $296.36 5.5%
Spirit $ 90.32 4.3%
Frontier $114.71 3.1%
Allegiant $133.65 2.5%
Hawaiian $349.12 1.5%
Sun Country $268.60 0.4%
Southwest, which continues to be a discount carrier though it no longer positions itself as industry’s absolute low price leader, had an average roundtrip domestic fare price, excluding fees and taxes, of $261.52 in the first half of the year.
American, the world’s largest airline, had a first half average fare of $411.63, while No. 2 Delta’s was $413.01 and No. 3 United’s was a relatively whopping $428.70.
But because Southwest, which has a very small international footprint, carries an industry-leading 23.3% of all domestic travelers (to the Big Three’s 19.6%, 18.8% and 14.4%, respectively), its first half average domestic round-trip fare of $261.52 has an out-sized effect on bringing down the industry’s average fare price.
The carrier with the lowest average domestic round-trip fare in the first half of this year was Spirit Airlines, at just $90.32. Thus, though it carries only 4.3% of domestic passenger, Spirit, which features Spartan service and extra fees for virtually any service beyond a seat on the plane also has a strong downward pull on the industry’s average fare. Though slightly pricier – and, in each case, smaller that Spirit – fellow “ultra low cost carrier” Frontier, Allegiant and Sun Country exert similar downward pull on the industry’s average price.