Thomas Cook on the brink

Thomas Cook, Europe's second-biggest tour operator, shocked the market this week. It announced that it was seeking an extra loan of £100m from its 17 banks only a month after it last renegotiated its debt terms. Cook said trading since September had been worse than expected and it needed to top up its cash for the slow winter months. The shares plunged by 75% on the news, which comes after three profit warnings earlier this year. The company's market capitalisation is now £89m; its debt pile is nearly £1bn.

What the commentators said

Global conditions are partly to blame, said Alex Brummer in the Daily Mail. Most of the firm's holidays are sold on the Continent, where the eurozone crisis and the Arab uprisings have undermined demand. "But a number of Cook's wounds look to be self-inflicted." It recently completed a merger with the Co-operative Travel Group, giving it over 50% more high street outlets. However, travel websites are "obviating the need for traditional travel shops".

Cook has also "dragged its heels on cost cuts" and been too slow to redesign holidays to cater for changing consumer tastes, added Hester Plumridge in The Wall Street Journal. Debt is too high at three times operating profit, given its volatile earnings. Bad management seems to be the biggest problem.

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Cook says it plans to cut costs and raise around £200m with asset sales. But these are tough markets for disposals and it may not have much time, said Alistair Osborne in The Daily Telegraph. "When holiday companies start to unravel, they unravel fast." That's because a vicious circle can set in, said Simon English in the Evening Standard. The worry is that potential customers rattled by negative headlines book elsewhere.

Cook will then cut prices to regain market share, but the damage to margins and profits will necessitate even more borrowing. Cook reckons it has a strong future. "We'll see."

TCG : 13p; 12m change -95%

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