Thomas Cook, one of the world’s most well-known travel agency, recently experienced a huge plunge in its shares by 25 percent to 8.4p. The price of the company’s bond, which is a safe long-term debt lent to a company, also fell in its value by almost a third. This issue came to be a massive cause of concern, with 22,000 jobs at stake, for this 178-year-old-company.
These record lows caused an uproar in the customers who had already made bookings with the agency and they questioned the company if it would still be possible for them to go on their holidays. To this, the company reassured them that this is just usual business and everything would run functionally.
While the shares did show some recovery later with 12.7 percent, at 10.3p, it remains in contrast with its highest peak of 302.3p in the year 2007. The reports released on the weekend following the fall revealed that the middleman company, responsible for processing customer payments, can very well withhold the millions of pounds indebted to Thomas Cook due to its financial condition. Flybe is another company that suffered like this by the credit card company, almost bringing it to the verge of collapse.
Holidaymakers and investors alike were alarmed last week when the travel operator revealed that it has stacked up a loss of £1.5 billion. The biggest cause of this loss was because the company had written down the worth of My Travel, the opposing company it bought in 2007, by around £1.1 billion. Due to its huge debt, the company is now also trying its hand at selling the airline business, which is proving to be a big struggle in the crowded market.
The drop also accounted for some suggestions from the Analyst of Citigroup, James Ainley, who branded Thomas Cook’s shares to be worthless. He said that the company should opt for debt-for-equity swap, in which lenders would be in control of the company.
The investors too, were afraid that the company would not be able to pay back the money owed them and as a result, the bonds also dropped third in price. Investors asking for high returns to compensate for the risk of investing in them indicates the dangers they think is associated with investing in this company.
The issue of credibility also comes in here as, given the situation, it is likely that fewer people would take the chance of booking their summer breaks with the company, which will result in less revenue. The company though, responds the opposite, claiming that their financial condition is recovery with incoming summers.
A spokesman of the company said about the issue that they have taken various steps to improve their financial conditions. They have the full support of their trusted banks and shareholders that have agreed on additional funding during low-cash periods like winters. Thomas Cook further explains to their customers that the company is under the Atol protection scheme, according to which even if the travel firm fails, customers can rest assured that they will not suffer any losses.