Thomas Cook - The first major Brexit casualty

I wasn't going to write about Thomas Cook this morning. Regular readers will know that we reserve Monday for our environment Monday column. But as I returned home from our morning dog walk over the Totteridge Valley, I was enraged to hear the Transport secretary Grant Shapps claiming that Thomas Cook was bound to fail because it had systemic problems and the government had no business stepping in to save it. I am sorry, but I cannot possibly let such a massive porkie pass unchallenged. There is no argument that the company had serious problems. There is no argument that it had been badly run. But there is no argument at all about why it failed today. The reason for that is completely down to dogs breakfast that the government has made of the Brexit process. Given what it's business involves, Thomas Cook is uniquely exposed to the chaos that the government has caused. Let me explain.

1. Uncertainty. A travel company requires the confidence of it's customers  that they will actually have a pleasant holiday. It is five weeks until the date when we leave, but no one knows what will happen when we get off the plane in France or Spain on the first of November. Will we need visa's? Will we be able to rent a car? Will our £££'s be worth anything? Will we need extra medical insurance? Will it take hours to get through customs? Will we have to go through the green channel, the red channel or the blue channel? Will we get a stamp on our passports. Will we have currency restrictions? What will our mobile phone charges be? With all of these questions unresolved, the many Thomas Cook customers who traditionally catch the last of the sun are being cautious. For a company such as Thomas Cook, the fact that the government has made such a dogs breakfast of the process, the implications of this are massive. For the travelling public, it means that you'd have to be bonkers to book a holiday until we know what is happening.

2. Currency fluctuations. Thomas Cook's customers largely pay in British Pounds. They pay their suppliers in Euro's or Dollars. The uncertainty over Brexit has caused the £ to plummet. In August, when it looked as if Boris was set to impose a no deal Brexit the £ plummeted to 1.08 euro's. For Thomas Cook, this coincided with the height of the holiday season. It also it hit its year low against the dollar then. No one knows what the exchange rate will be on 1st November. There are three possible scenarios, a  no deal, a deal or an extension. Each of these will result in a completely different exchange rate. For Thomas Cook, any refinancing deal had to take account of all of these scenarios. Whether you are a Brexiteer or a Remainer, it should be clear to you that the currency issues were lethal for Thomas Cook.

3. Compensation claims. Thomas Cook are an airline operator. By law they have to provide compensation for late flights. As no one knows the situation with passports and customs on 1st November, the company was exposed to the risk of massive compensation claims, if flights suffered disruption. Of course the compensation is governed by European law, so it is possible that this won't apply, but it is another variable.

4. Risk. When a company that is in trouble tries to negotiate finance, the key factor is what the risk to the lender/provider is. I now quite a lot about this. I used to work for a software company that wrote decision support software to analyse risk. Prior to Brexit, the risks of wild currency swings for Sterling were not high. For a company like Thomas Cook securing finance, they would be able to predict, within parameters the likely value of the £ vs the Euro and Dollar. In the event of a no deal, the £ could easily drop below one euro. In the event of a sensible deal it is likely to be above 1.20. From the perspective of Thomas Cook, their financing requirements could be 20% more than they would be today, to service their dollar and euro suppliers. I'm not surprised that banks were not prepared to take the risk. the risks are simply too high. Compound the fact that on top of the currency risk, there is a credible risk that travellers may be prevented from travelling. The compensation risk adds yet more toxicity to the proposition.

Grant Shapps refusal to take any responsibility means that 9,000 are out of work. They don't even know if they will get their paycheck this month. As to the number of holiday makers who will have lost out, I've not seen a figure. I have an old fashioned view of this sort of situation. Grant Shapps as Transport secretary should be supporting transportation businesses thrown into chaos by his governments incompetence. But the modern breed of politician never apologise and never take responsibility. There should be a multi billion fund to support businesses adversely affected by Brexit. They should have a degree of certainty. Thomas Cook agreed a rescue package with a large Chinese firm. This has fallen apart as there is simply too much uncertainty. Personally I'd like to have seen the company nationalised and put back on its feet. It is better to pay 9,000 to work than to sit on the dole. It is hugely unfair on the people who bought holidays in good faith to lose them. If Grant Shapps and Boris Johnson really believe that there is a bright future for the UK post Brexit, then a travel firm would be a great investment. Foreign travel is a luxury and if the economy is going to boom, then we'd all have lots of money to spend on holidays with Thomas Cook. Once the company was back on its feet, they could sell the shares back to the private sector at a huge profit. Or maybe Boris Johnson and Grant Shapps, having read the latest Yellowhammer analysis, have concluded that no one will be able to afford holidays next year. If that is the case, then don't you want to know?

Thomas Cook is the first high profile victim of Brexit. I very much doubt that it will be the last. My advice? If you are booking a holiday, make sure your insurance covers this sort of thing.