Shares of Thomas Cook plunged 75 per cent in London on Tuesday and the company’s bonds traded at about half their value after the world’s second-largest travel operator announced a new round of talks with its lenders.
That the company has to negotiate its debt payments is one thing, but this is the second round of talks in just a few weeks. Since the first negotiation, “some areas of the business” have gotten worse, and its cash position has deteriorated since Sept. 30, the company said.
Such a rapid decline is startling, but the underlying problems make sense. Thomas Cook is based in Britain, and its core customers are families with young children. That demographic group is hurting right now. Moreover, the tour operator travelled to Egypt, Tunisia and Morocco, which aren’t exactly calm at the moment
But the big question is whether Thomas Cook is an isolated case, or could this be an industry downturn that will wreak havoc for firms like Canada’s Transat A.T. Inc. ?
Benoit Poirier at Desjardins Securities isn’t too worried about Transat right now. The company generates only about one-tenth of its revenue from the U.K. market, and troubled Thomas Cook owns 100 per cent of Sunquest vacations, a Canadian tour operator with sun destinations. If Thomas Cook gets into trouble, it could open up some market share here.
Plus, Mr. Poirier points out that Transat had $308-million in cash on its balance sheet at quarter end.
Still, its not as though Transat is a shining success story. Year-to-date, the company’s shares are down a shocking 65 per cent. That prompted management to review the entire business and convinced it to do things like cut 143 jobs, which was announced last month. An full operational review is expected on Dec. 15.