Thomas Cook races to secure more rescue funds
Troubled Thomas Cook could fall into administration this weekend unless the travel company finds £200m in extra funds needed to secure its future.
Banks, including RBS and Lloyds, insist the firm comes up with the new contingency funds in case it needs extra money during the winter months.
A collapse would leave 150,000 UK holidaymakers stranded and require a huge repatriation effort.
Sources insisted there were still “reasonable prospects” of a deal.
But they added that the coming 24 hours were crucial to the travel group’s survival.
Currently there are 600,000 Thomas Cook customers on holiday, of which 150,000 to 160,000 are from the UK.
The troubled operator hoped to seal a rescue led by China’s Fosun this week. But the creditor banks issued a last-minute demand that the travel company find an extra £200m.
Sources have confirmed that the Civil Aviation Authority is on standby with a repatriation contingency plan called Operation Matterhorn. The potential cost of bringing home passengers is put at about £600m.
The CAA said: “We are in regular contact with all large ATOL holders and constantly monitor company performance. We do not comment on the financial situation of the individual businesses we regulate.”
One woman’s £8,000 decision
Teacher Jacqui Cunningham and her partner, train driver Angus McNair, from Brentwood, Essex, have booked a holiday to the Maldives with Thomas Cook for December. The luxury trip is to celebrate Ms Cunningham’s recovery from cancer.
They have paid a deposit of £500 and the balance of £8,000 is due by midnight on Friday.
Thomas Cook is, of course, still operating. But their predicament underlines the anxiety many customers are feeling.
Ms Cunningham and Mr McNair called the customer service helpline and asked if they could delay paying the £8,000 until they know that the tour operator is not going to fall into administration. But they were told the deadline remains, or they would lose their £500 deposit.
“We were going to pay on debit card, but now I think we’ll put it on the credit card if we go forward,” Ms Cunningham told the BBC.
“We would like to go on our holiday, but we want to know that they’ll sort out that £200m they’re looking for.”
Thomas Cook employs 22,000 staff, 9,000 of those in the UK. It serves 19 million customers a year in 16 different countries.
But Thomas Cook’s financial difficulties have mounted over the past year, culminating with the agreement in August of a rescue deal led by its biggest shareholder Fosun, that would see the Chinese firm back refinancing of the 179-year-old British firm.
In July, Thomas Cook produced a business plan saying that it needed £900m in refinancing, up from a previous estimate of £150m. The £900m would come from Fosun, the group of creditors and some other investors.
The group of lenders then commissioned an independent investigation. Its financial advisers said Thomas Cook would require an additional £200m on top of the £900m already required, which would bring the total refinancing needed up to £1.1bn.
Thomas Cook succeeded in finding a backer to provide the additional £200m, but the BBC understands that the backer has now pulled out and the group of creditors will not come back to the table unless that additional funding is found.
A final vote on that deal was due to take place this week, but it has been delayed until next Friday in the face of the latest demand for extra standby funding.
Earlier this week, Thomas Cook said it was “focused on completing” the deal. It is believed to be negotiating with its banks, bondholders and Fosun in an attempt to keep the rescue on track.
In May, the operator reported a £1.5bn loss for the first half of the year. It has also issued three profit warnings over the past year and is struggling to reduce its debts.
It has blamed a series of problems for its profit warnings, including political unrest in holiday destinations such as Turkey, last summer’s prolonged heatwave and customers delaying booking holidays because of Brexit.
What are your rights?
If you are on a package holiday you are covered by the Air Travel Organiser’s Licence scheme (ATOL).
The scheme will pay for your accommodation abroad, although you may have to move to a different hotel or apartment.
ATOL will also pay to have you brought home if the airline is no longer operating.
If you have holiday booked in the future you will also be refunded by the scheme.
If you have booked a flight-only deal you will need to apply to your travel insurance company or credit card and debit card provider to seek a refund.
When Monarch Airlines collapsed in 2017, the government organised to bring home all the stranded passengers, whether they were covered by ATOL or not.
It has also suffered from competition from online travel agents and low-cost airlines.
The winter months can put a strain on travel companies’ finances as typically there is less revenue coming in, while suppliers need to be paid for services provided over the high summer season.
Mark Burgess, chief investment officer of Columbia Threadneedle Investments, told the BBC that Thomas Cook’s creditors were “being very careful” about extending lines of credit, because the firm was “in a precarious financial position“.
“Companies don’t go bust because they have too much debt – they go bust because they run out of cash,” he added.
“Banks are managing their exposure very carefully, because the last thing they want to do is to have to write off loans to the company.”
RBS said: “As one of a number of lenders, RBS has provided considerable support to Thomas Cook over many years and continues to work with all parties in order to try and find a resolution to the funding and liquidity shortfall at Thomas Cook.”
Thomas Cook is one of the world’s largest travel companies. It was founded in 1841 to operate temperance day trips. It now has annual sales of £9bn.
If the rescue deal goes ahead, it would be majority owned by Fosun, which is also a majority shareholder in Wolverhampton Wanderers Football Club and French resort operator Club Med.
Thomas Cook: Your questions answered
Hundreds of thousands of Thomas Cook customers are worried about their holidays amid the travel company’s current turmoil.
The business could fall into administration this weekend unless it finds £200m in extra funds needed to secure its future.
It is doing its best to reassure customers, but any collapse could leave thousands of people out of a job and throw the holiday plans of many more in the air.
Is the company going under?
It is in a race against time to find extra money to survive, but sources insist there are still “reasonable prospects” of a deal.
Thomas Cook hoped to seal a rescue led by China’s Fosun this week, but the creditor banks issued a demand that the travel company find an extra £200m.
There are plenty of examples of companies securing a seemingly last-minute deal to continue, and Thomas Cook is stressing that it is still operating, with flights and bookings continuing as usual.
Will I lose my holiday booking if Thomas Cook collapses?
Anyone who has bought a package holiday will be covered by the Air Travel Organiser’s Licence scheme (ATOL).
This means you will not be going away, but the cost of the holiday will be refunded.
The majority of of Thomas Cook holidays are packages.
Does the refund cover everything?
Stating the obvious, everything that was paid for as part of the package – such as flights, accommodation, and excursions – will be refunded.
Some holidaymakers might have paid separately for airport parking, or car hire while away. In this situation, they would need to make a claim from their travel insurer for the cost.
In more extreme cases, such a wedding, there may be a host of other things that could be affected. Specialist cover, such as wedding insurance, may be the only route for those left out of pocket.
Could I switch to another holiday?
Probably not. Thomas Cook customers must carry on as normal at the moment. Cancelling might carry a heavy financial penalty. Were the company to collapse, they would only get a refund, as that is what the ATOL protection states.
Some other operators which use Thomas Cook flights will try to switch their customers to an alternative at no extra cost.
I have only booked a flight with Thomas Cook, what are my rights?
The ATOL protection covers packages, not flight-only deals. So that means that if the company collapsed, you would not get an automatic refund.
Instead, you would need to make a claim on travel insurance. That is why it is always advised to buy travel insurance at the same time as booking a holiday. Some policies have an exclusion for the collapse of an airline, so not everyone will be covered.
A spokesman for the Association of British Insurers says: “As a last resort, travel insurance with scheduled airline failure cover can cover the cost of a flight when the airline has gone into administration. A travel insurance policy with travel disruption cover will cover the cost of new travel arrangements.
“Any customers buying travel insurance now with the current speculation over Thomas Cook should confirm with the insurer what the policy will cover as an insurance policy bought after an event is known or has occurred may not be valid.”
The other alternative is claiming a refund from the provider of the credit or debit card you used, so-called section 75 rules.
There may be a little more protection if the hotel you booked was linked to the flight, such as a click-through when booking the flight.
I’m on holiday now, what do I do?
At the moment, enjoy your break – it is supposed to be relaxing!
If Thomas Cook were to collapse, then the ATOL scheme ensures that anyone on a package holiday will be able to complete their break as planned and be flown home at the end of it, at no extra cost. There is a possibility you may be asked to change hotels.
Thomas Cook has 600,000 customers on holiday from around the world, including up to 160,000 from the UK, so it will be a huge logistical challenge.
When the Monarch airline collapsed, there were arguments for a better repatriation system, but nothing has been implemented as yet.
Those on flight-only deals were also repatriated following the Monarch collapse, by order of the government. That precedent suggests that could happen if required this time, but cannot be guaranteed.
I’ve been given a Thomas Cook gift card. Will it be of use?
At the moment, yes, as the company continues to operate as normal.
If the company goes bust, then it is highly likely that gift cards or vouchers will be worthless, consumer experts say.
It will depend on what happens to the company, whether it is rekindled, and whether any vouchers would then be honoured. If they are useless, then the person who bought it might be able to make a claim to their credit card provider if it was a generous gift of more than £100, or their debit card provider for less.
What about other services, such as sport packages?
Thomas Cook does run domestic ticket and hotel packages for sporting events.
It is unclear what would happen to those bookings if it collapsed, but as most people would not have any insurance cover for such a trip, a refund claim would probably have to be made to the provider of the credit or debit card used to pay.