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Insight

What the travel sector can learn from the demise of Thomas Cook

Thomas Cook is an iconic, well-respected travel brand with a strong heritage. Or, was.

Thomas Cook is an iconic, well-respected travel brand with a strong heritage. Or, was.

The company invented the concept of package holidays and brought joy to many generations of travellers over 178 years. Its demise is a blow to the entire industry, not only because it is a sad thing to see such a venerable brand die but also to consider the thousands of talented employees who lost their jobs. However, although factors such as Brexit uncertainty, a weak pound, and the heatwave in the summer of 2018 may have contributed to the timing of its collapse, it cannot be denied that there were already longstanding issues with Thomas Cook’s business model.

Thomas Cook faced the formidable challenge of competing as a high street retailer, hotelier, European airline and digital business at a time when consumers became increasingly empowered - through online - to ‘package’ their own holidays. Unlike the leading online travel agents (many digital from birth) or the low-cost airlines whose business models necessitated digital capability to reduce cost, Thomas Cook was unable to find the omnichannel strategy that represented mass consumerism in 2019. It couldn’t offer access to unrestricted inventory, unlimited price comparison, and an increasingly personalised experience. Instead, Thomas Cook maintained a staff of 22,000 in 16 countries and 600 physical stores in the UK alone, pursuing a strategy of bundling the entire vacation package with limited choice for travellers. 

If the Thomas Cook brand was synonymous with the traditional package holiday then does its downfall really signal the end of this particular business model within the travel industry? Not necessarily, although it does drive home the message that for businesses to survive they need to pursue a course of rigorous digital transformation and not just to operate as usual. In order to transform, there are some key steps travel brands need to take. 

Be crystal-clear about purpose

What needs are travel companies serving? What problem are they solving? This clarity is important because it allows companies to focus on what is really important. Thomas Cook decided at some point to be both a travel agent and an airline operator. Both are challenging businesses, but the combination of the two at a time of uncertainty proved to be deadly.

It’s therefore crucial to understand what the business exists for in terms of its value to the customer and the business value derived from that. Thomas Cook served a diminishing market as customer behavior and preferences changed along with changing demographics. And while they had more control because of their vertically integrated business model, they could not translate that to sufficient revenue in an industry where margins can be razor-thin.

Focus on designing the experience

If digital is a business’s primary touchpoint with their customers, then the experience is of paramount importance. Even Thomas Cook’siconic brand could not prevent customers from going where they could get more choice and more transparency via their preferred channel rather than Thomas Cook’s high street stores. If a company designs its customer touchpoints well, and with a strategy to truly be customer-centric, the digital experience can shape and reset customer expectations.

Be powered by engineering

Simply dreaming up a good concept is not enough. Businesses must bring them to life, and do it rapidly. Digital natives are incredibly good at this. A well-engineered process for managing, testing and deploying code allows businesses to quickly meet changing expectations or serving new needs by enhancing existing functionality or rolling out new features. Amazon, for example, deploys new code about every 10 seconds. While that may seem extreme and unnecessary, it is undeniable that rolling out a new release once or twice a year is not enough. Businesses that retool their engineering processes will find it easier to thrive because the barrier to try new features and test new markets are lower. Several retailers have been successful at holding their own against Amazon using this approach.

Unlock the power of data and AI

Finally, businesses must learn to utilise the wealth of customer, operational and product data that they have at hand. While finding ways to monetise the data may seem like an obvious tactic, much more powerful is the ability to use the data (and AI-models built on top of the data) to understand customer preferences and refine their products and services.

The demise of Thomas Cook should serve as a warning that the travel sector is not immune to digital disruption. We have seen this story play out across many other industries. In many cases, the incumbents didn’t react to their new digital-native competition until it was too late. In a digital economy, where a company’s brand is only as good as the experience it offers its customers, where consumers have high and ever-changing expectations, and where competition moves at a break-neck pace, it is more important than ever to take steps to ensure that digital business operations are redesigned from the ground up to meet challengers head-on.  

Author

Sooho Choi

Executive Vice President and Global Head of Travel & Hospitality