The Thomas Cook collapse, and its lessons for suppliers

Travel agency Thomas Cook’s shock collapse in September led to 600,000 customers being left overseas without a ride home, including 150,000 British tourists and about 300,000 Germans.

Awaiting a fate as bad as the stranded customers are the suppliers that are waiting for payment from Thomas Cook that may or may never arrive.

But the world’s oldest holiday firm had been exhibiting warning signs for some time. Last year, it was named among the worst offending businesses for paying their suppliers late. It took 88 days to pay its suppliers, and it failed to pay 80% of its invoices within the agreed terms with them.

It was revealed that Thomas Cook paid £1.2 billion in finance charges over the past six years, profits from its holiday business, money that in a more balanced financial model would have been available to invest in developing the business.

When Thomas Cook went out of business on 23 September, it owed £1.7 billion to its banks with a further £1.3 billion owed to its suppliers.

Mark Tanzer, the chief executive of UK travel association Abta, said Thomas Cook’s collapse was more a failure of corporate finance than anything, noting that the company sold £9.5 billion worth of holidays last year, and yet it ran out of cash. Tanzer said that with a more balanced financial model, money would have been available to invest and develop the business.

Salaries at Thomas Cook have received the most scrutiny – top executives at the company received £18.7 million worth of pay in the past 10 years, even in the last five years when the company’s profits were in sharp decline. The calculation of the executive salaries was done by The Financial Times from annual reports.

Current CEO Peter Fankhauser was earning about £8.5 million in his near five-year tenure. Fankhauser has since defended his pay, saying that half his remuneration, which comes up to about £4 million, came in the form of share payments, which are now worthless.