Facultat d’Economia i Empresa Memòria del Treball de Fi de Grau Analysis of operations and processes at Thomas Cook. Enrique Rodríguez Romera Grau de Administració d’Empreses Any acadèmic 2019-20 DNI de l’alumne: 41516648S Treball tutelat per Abel E. Lucena Pimentel Departament d’Economia de l’Empresa S'autoritza la Universitat a incloure aquest treball en el Repositori Autor Tutor Institucional per a la seva consulta en accés obert i difusió en línia, Sí No Sí No amb finalitats exclusivament acadèmiques i d'investigació Paraules clau del treball: Tour operator, Thomas Cook, Bankruptcy, vertical integration, online distribution ABSTRACT On September 23rd, 2019, one of the largest and most historic companies in the world within the Tourism industry went bankrupt, this was known as Thomas Cook Tour Operator. The following paper reviews the history of Thomas Cook as a company and the evolution of Tour Operators in general. Furthermore, it analyses the models and strategies adopted by the company, which led to its bankruptcy. This study examines the strategy Thomas Cook had over the years and how implementing vertical integration had a massive negative impact, as the company had little flexibility to adapt to new changes in the way the company was distributed. Thomas Cook remained with a traditional mentality, while the competitors were adapting rapidly to the new technology. Therefore, while other Tour Operators were reacting fast and experiencing the advantages of this new period within the industry, Thomas Cook was left behind and subsequently ended up bankrupt. KEYWORDS Tour operator, Thomas Cook, bankruptcy, vertical integration, online distribution 2 TABLE OF CONTENTS ABSTRACT ....................................................................................................................... 2 KEYWORDS ..................................................................................................................... 2 TABLE OF CONTENTS ................................................................................................... 3 TABLE OF FIGURES ....................................................................................................... 3 1. INTRODUCTION .......................................................................................................... 4 2. AIM ................................................................................................................................ 6 3. OBJECTIVES ............................................................................................................... 6 4. METHODOLOGY ......................................................................................................... 6 5. THOMAS COOK GROUP ............................................................................................ 7 5.1. THE BEGINNING OF THOMAS COOK................................................................ 7 5.2. LAST DECADES OF THOMAS COOK................................................................. 9 6. CONCEPTUAL FRAMEWORK .................................................................................. 11 6.1. THE TOUR OPERATOR CONCEPT OVER THE YEARS................................. 11 6.2. OPERATIONS, PROCESSES AND MANAGEMENT IN TT.OO. ...................... 17 6.2.1. VERTICAL INTEGRATION AS A BUSINESS MODEL ........................... 17 6.2.1.1. ADVANTAGES OF VERTICAL INTEGRATION ........................ 18 6.2.1.2. DISADVANTAGES OF VERTICAL INTEGRATION .................. 20 6.2.2. DISTRIBUTION STRATEGIES IN TOUR OPERATORS ........................ 23 6.2.2.1. TRADITIONAL DISTRIBUTION STRATEGIES (OFFLINE) ...... 23 6.2.2.2. NEW DISTRIBUTION STRATEGIES (ONLINE) ....................... 24 7. FINDINGS AND DISCUSSION .................................................................................. 27 7.1. OPERATIONS, PROCESSES AND MANAGEMENT IN THOMAS COOK ....... 27 7.2. WHY DID THOMAS COOK BANKRUPCTY?..................................................... 28 8. CONCLUSIONS AND RECOMMENDATIONS ......................................................... 30 8.1. CONCLUSIONS .................................................................................................. 30 8.2. LIMITATIONS ...................................................................................................... 31 8.3. RECOMMENDATIONS ....................................................................................... 32 7. BIBLIOGRAPHY ......................................................................................................... 34 TABLE OF FIGURES FIGURE 1. VERTICAL INTEGRATION MODEL .......................................................... 20 FIGURE 2. DISTRIBUTION TRENDS FOR TOUR OPERATORS AND ONLINE TRAVEL AGENCIES SINCE 2010................................................................................. 25 FIGURE 3. RESERVATIONS TRENDS BY BOOKING CHANNELS (DIRECT, OTAs & TOs) CLASSIFIED BY AGE. ............................................................................ 26 3 1. INTRODUCTION The bankruptcy of one of the largest tour operators in history, with 178 years of experience, had a great impact on the tourism industry. This affected thousands of tourists, employees, subsidiaries in different countries, and a large number of suppliers. “The bankruptcy of companies concerns not only shareholders and creditors, but also an entire economy, affecting all stakeholders directly or indirectly” (Akbulayev et al., 2020: 1). The 23rd of September 2019 will always be remembered as a before and after within one of the biggest tourist bankruptcy in the world in the tourism industry. Thomas Cook was one of the leading companies with a strong presence in the tourism industry, therefore the study and analysis of the company’s bankruptcy are extremely relevant and a point of reference for many experts within the industry. They had a strong, powerful, and well-known brand with a multi- divisional structure. The company was vertically integrated having for instance shops at street level where customers could buy packages directly, a fleet of airplanes, and many hotels in a wide range of destinations. So what caused Thomas Cook’s bankruptcy, which strategies were adopted by the company, were these strategies the right ones? All these questions will be analysed in more detail in this study. In the 1990s, Tour Operators’ most common approach was to integrate vertically, and therefore if we have a look back at the company’s history and management we can appreciate that these were the strategy models adopted back then. It is important to mention that these types of strategies had certain advantages during those days such as market power by having strong entry barriers, control prices, among others. However, this type of approach also had its disadvantages, such as higher costs, inflexibility within the value chain, and not much room for any changes. Thomas Cook’s strategy was mostly focused on acquiring companies or merging with them, which led the company to more debt (Akbulayev et al., 2020: 5-6). 4 One of the biggest mistakes that Tomas Cook made was not reacting on time when the Internet era arrived (Collinson, 2019). As mentioned earlier, being strongly vertically integrated and not willing to be flexible the company continued to operate and traditionally distribute its products and services. In the meantime, the main competitors took this new era as an advantage of new technologies and became stronger with even bigger market power. Tourism companies that innovated with technology had lower costs and could, therefore, lower their prices (Herrero Gómez, 2020: 49-50). The following study has been structured as follows: Firstly, a clear output of the main objectives followed by a detailed methodology used to achieve them. Secondly, Thomas Cook’s history will be explained in two parts. The first one will include the beginnings until the nineties and the second one will go from the nineties to its last days in 2019. The main aim is to provide the reader with the opportunity to be in context and to give a better understanding of the dimension of the company and its operations and its operations. Thirdly, a conceptual framework has been created to analyse the evolution over the years of tour operators and the relationship within Thomas Cook. Then, the models of vertical integration have been studied and put into place its advantages and disadvantages. Also, the Tour Operators’ distribution models including both traditional and online have been analysed and how this impacted Thomas Cook. Lastly, the results achieved and the conclusion has been commented. 5 2. AIM The main aim of this research is to analyse and study the bankruptcy of Thomas Cook and the influence that the management of its operations had in generating such bankruptcy. 3. OBJECTIVES 1. To analyse and investigate Thomas Cook company´s background and evaluate the management model followed by the firm and the causes of its bankruptcy. 2. To determine and analyse the main strategy model, such as the vertical integration model, its advantages and disadvantages, and its economic impacts on the firm. 3. To distinguish and analyse between offline and online distribution models and the consequences of a late market strategy by Thomas Cook. 4. METHODOLOGY The methodology followed for the development of this project is the collection of information and the bibliographic search. To carry out this bibliographic research, we first sought all the necessary information on Thomas Cook and his history. Subsequently,