600,000 Are Stranded Abroad. They Won't Be the Last
WHY YOU SHOULD CARE
Thomas Cook is the latest in a string of European carriers to go bankrupt.
By OZY Editors
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WHAT TO KNOW
What happened? Six hundred thousand passengers were stranded without warning as British travel company Thomas Cook declared bankruptcy early Monday. The company — which claims to be the world’s oldest travel firm with roots stretching back to 1841 — canceled all of its flights immediately. This has triggered the largest peacetime repatriation in U.K. history as the government charters flights to bring home roughly 150,000 British passengers in what’s being called Operation Matterhorn.
Why does it matter? Thomas Cook is far from the only travel carrier to go under recently. Earlier this month, France’s second-largest carrier, Aigle Azur, stranded more than 13,000 passengers when it suddenly went bust, and in March low-cost Iceland-based WOW Air shut down and left 4,000 passengers with no recourse — though it’s now reportedly planning a comeback next month with a fleet of just two planes. The bankruptcies could decimate Europe’s low-cost air industry. Since there are few protections for passengers when an airline goes under, travelers might now think twice about the financial solvency of vacation-booking companies.
HOW TO THINK ABOUT IT
The culprits. Struggling airlines have blamed cash flow problems on fuel costs and the pressure to offer ultra-low fares, but the industry has seen other difficulties in recent years. Thomas Cook’s position as a package holiday dealer suffered as it failed to adapt to the internet — and a world in which people routinely book their own travel instead of using agencies.
The next domino. Rumors that popular Norwegian Air will declare bankruptcy have been swirling for months, and now airlines are getting past the lucrative summer months and hunkering down for winter. But other European airlines might go first: Slovenia’s government is reportedly preparing for the potential bankruptcy of Adria Air, and France’s XL Airlines suspended ticket sales last week, citing financial difficulties.
Brexit to blame? While Thomas Cook held billions in debt and was ultimately unable to find the hundreds of millions of dollars needed to stay afloat, the company in May warned that Brexit uncertainty was hurting business. Brexit is currently set to happen at the end of October, and if the U.K. leaves the EU without a deal, the withdrawal is expected to significantly disrupt border crossings and other travel basics, as well as spark food and medicine shortages.
Knock-on effects. Package holidays are protected by European law, which means the government must cover repatriation costs. The price tag is expected to be far greater than the 2017 collapse of Monarch Airlines, which cost British taxpayers about $51 million. Meanwhile, the 21,000 employees of Thomas Cook — and all the hotels and other businesses that depend on their package holidays, particularly in Greece, where about 50 hotels have franchise agreements with Thomas Cook — are headed for a rough patch. Some airline collapses have had even more far-reaching effects: When Wow Air went down, for example, it reduced the number of tourists to Iceland, hurting the country’s economy as a whole.
WHAT TO READ
Europe’s Airline Industry Is Consolidating, in The Economist
“Concentration has resulted in poorer service: three American operators can be found on the list of the world’s 50 best carriers, as rated by Skytrax, an aviation website, compared with 13 European ones.”
Wow Air’s New Owner Wants to ‘Make Flying Fun Again,’ by Hannah Sampson in The Washington Post
“Michele Ballarin’s ambitious goal has raised eyebrows among industry analysts who question the scant details available about the plan, as well as why anyone would start flying to the North Atlantic just in time for winter.”
WHAT TO WATCH
Why Are So Many Airlines Collapsing?
“All of these airlines promised affordable cheap fares and yet all have vanished from the scene.”
Watch on Pure Aviation on YouTube:
Thomas Cook Collapse Leaves Thousands Stranded as Bailout Fails
“[Banks] will be looking at this, thinking ‘What does this say about our exposure to UK domestic companies?’ ”
Watch on Bloomberg on YouTube:
WHAT TO SAY AT THE WATERCOOLER
Green machine. Airlines have seen increased scrutiny over the huge carbon footprint of flying thanks to rising awareness of climate change. While Sweden’s flygskam (“flight shame”) movement is reportedly gaining ground — Sweden’s airline industry shrank by 5 percent in the first half of 2019 — it’s not affecting most airlines’ bottom lines yet. But some countries are pressuring Europe to levy carbon taxes on the aviation industry that could press small carriers even further.
- OZY Editors, OZY Author Contact OZY Editors