Thomas Cook’s holiday nightmare

High debt, fierce competition and one-off factors have pushed tour operator Thomas Cook to the brink of bankruptcy.

Thomas Cook and Condor planes

Tour operator Thomas Cook (LSE: TCG) is suffering an "interminable holiday nightmare", says Rob Davies in The Guardian. High debt, fierce competition and "one-off factors, including last summer's heatwave" have pushed tour operator Thomas Cook to the brink of bankruptcy.

It now owes banks so much money "that three million out of the 11 million holidays it has been selling per year were funding debt repayments".

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With income "under pressure" and "little room" for manoeuvre on costs, its survival now depends on the completion of a bailout that will provide enough "breathing space" to allow it to sell its airline for a good price and move into the hotel market. The deal involves Thomas Cook's creditors "taking a share in the business in a debt-for-equity swap", says Simon Calder in the Independent.

There will also be a £750m cash injection from Chinese firm Fosun, in return for "a significant controlling stake" in the firm's tour operations (but not its airline, thanks to EU airline-ownership rules). This arrangement should not only reduce Thomas Cook's debt, but also "see the travel firm through what is expected to be a tough winter" and "provide the financial flexibility to invest in the business for the future". However, shareholders "will retain only a tiny proportion of the company".

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The success of the rescue plan shouldn't be taken for granted, says Alan Tovey in The Daily Telegraph. Analysts say the board will need a "strong turnaround plan, about which little detail has yet been given" if it is to work. Overall, "the risk of the process stalling seems high".

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