By Paul Sandle and Kate Holton
LONDON, Sept 23 (Reuters) - Thomas Cook sold tens of
millions of Britons a summer holiday to remember with the slogan
"Don't just book it, Thomas Cook it".
But behind the glossy brochures, it was struggling to adapt
to market changes: while taking over rivals delivered short-term
savings, it propelled the British brand towards a $2.1 billion
debt pile that would ultimately seal its fate.
It narrowly avoided collapse in 2011 when, reeling from the
Arab Spring, Icelandic volcano and a squeeze on British incomes,
it had to beg for a 200 million pound ($249 million) lifeline.
Eight years later it was in the same position, but its
creditors had had enough. With the business draining cash, Chief
Executive Peter Fankhauser found its lenders, bondholders and
even the government were no longer willing to step in.
Its collapse in the early hours of Monday left hundreds of
thousands of people stranded at holiday destinations around the
world and the British government leading the biggest peacetime
repatriation in British history.
One person familiar with the situation said lenders and
bondholders had backed Thomas Cook through the busy summer
months, when up to 2 million people were on holiday in peak
weeks, and then pulled the plug at the first opportunity.
"It wasn't a deal (the lenders) wanted to do," the person
said, speaking on the condition of anonymity. "It is exposed to
events that can't be predicted, they didn't understand it."
The British government decided Thomas Cook was a bet it did
not want to take after the banks had lost patience.
Media reports in recent weeks had prompted suppliers to call
in debts and future customers to go elsewhere, draining the
business of the cash it needed to continue. "It got to a full
scale run on the business," the person said.
MORTGAGING THE FUTURE
The pressure on the balance sheet stemmed from the 2007
merger of Thomas Cook, which was German owned at the time, with
Airtours-brand owner MyTravel, creating a 2.8 billion-pound
group.
Both companies had survived an industry downturn a few years
earlier by slashing jobs, and boss Manny Fontenla-Novoa
delivered more cuts, helping him to take home 7 million pounds
in 2008 as his reward.
Two years later, Thomas Cook drove more consolidation by
buying the Co-operative Group's high street travel and foreign
exchange business, giving it a total of 1,200 shops.
By betting on size, the company had burdened itself with
expensive shops just as more customers were moving online.
In 2010, the industry was rocked by disruption from the
Icelandic volcanic ash cloud and the Arab Spring, leading to a
string of profit warnings.
Fontenla-Novoa quit in 2011, after he had earned 17.2
million pounds during his tenure.
Months later the company agreed a 200 million pound loan
from lenders, with an eye-watering 6% interest, rising 0.5
percentage points every quarter.
DEBT MOUNTAIN
Harriet Green was hired in 2012 to lead a turnaround, after
telling the chairman "I think you need me".
After cutting the cost base she left suddenly two years
later, having increased the value of the group from 148 million
pounds to just under 2 billion pounds. She earned nearly 4.9
million pounds.
Company insider Fankhauser took over. He apologised for the
tragic deaths of two children while staying at a hotel booked
through Thomas Cook in 2006, and initiated an independent review
of its customer service.
He also reduced the company's portfolio of hotels and
jettisoned Club 18-30, a "sun, sea and sex" brand that reached a
zenith in the 1990s but felt increasingly dated.
However, he was forever boxed-in by the company's $2.1
billion debt, which required the group to sell 3 million
holidays to service.
He agreed the main terms of a rescue deal from its largest
shareholder, China's Fosun Tourism, last month, but was unable
to secure 200 million to keep operating through the winter.
In May of this year the company wrote off the value of the
MyTravel deal, some 12 years after the tie-up.
Alarmed by the rate at which the business was burning
through cash and with the tough winter period ahead, its
stakeholders pulled their support. In desperate meetings held
over the weekend, it even asked credit card companies to release
50 million pounds held as collateral against its bookings.
Fankhauser has earned 8.3 million pounds, including 4.3
million pounds in 2015.
"There was no way to prevent this collapse," a second source
familiar with the situation said. "What else was left to do?"
The last passengers on a Thomas Cook flight landed in
Manchester, England, on Monday morning, as customers and staff
tried to come to terms with the loss of a company that, founded
in 1841, had brought much joy to millions.
Holidaymaker Ricky Houston said on Monday he'd had a
fantastic week in Corfu, Greece, with Thomas Cook.
"I feel sorry for the reps", he said. "For us it's an
inconvenience, for them, it's their livelihoods."
($1 = 0.8045 pounds)
(Additional reporting by Alistair Smout
editing by Guy Faulconbridge and Keith Weir)
