By Callum Keown
Thomas Cook’s rivals soared after Britain’s oldest travel agent collapsed Monday, but the slow death of the package holiday could see alternative providers having the last laugh.
Tui /zigman2/quotes/207049334/delayed UK:TUI +2.06% and Jet2 owner Dart Group /zigman2/quotes/209474077/delayed UK:DTG +1.94% made strong gains, but tour operators could face turbulent times ahead as the industry faces mounting headwinds.
Thomas Cookbegan in 1841 with an 11-mile railway trip taking 500 temperance-society members from Leicester, England, to a teetotal rally in Loughborough. After 178 years of organizing travel, the final flight came in for a Monday-morning landing at Manchester Airport. Poor decisions in the face of rising online retailers, a £1.7 billion debt pile — roughly $2.1 billion — along with summer heat waves and increased competition contributed to the company’s downfall.
The growing popularity of “staycations” due to warmer weather in the U.K. and as a cheaper alternative to going abroad on vacation has also affected demand.
But the sudden collapse of Thomas Cook may also signify that the end is nigh for the package holiday. Already, rival Monarch went bust in 2017 after having moved away from its once-successful packages to focus on flight-only deals.
Rise of online holiday retailers
Holidaymakers have warmed to the flexibility offered by an increasing variety of online companies, including Expedia /zigman2/quotes/202291990/composite EXPE -1.96% and Booking.com /zigman2/quotes/203576210/composite BKNG +0.15% in recent years. Platforms such as Airbnb as well as apps for car hire and cheaper flights have enabled customers to build their own holidays.
Leading online holiday firm On the Beach /zigman2/quotes/205893537/delayed UK:OTB +6.12% could benefit from the trend away from package tours. The company, which focuses on short-haul beach holidays, allows customers to control all elements of a trip, including flights, hotels and other services.
Shares have risen 21% so far this year, and despite warning of a one-off cost in helping its customers who had booked with Thomas Cook, the stock could climb higher as it looks to grow sales from longer-haul holidays.
A smaller trend toward specialist holidays has also emerged in recent years, with eco-friendly vacations and adventure holidays increasingly popular. Another is the niche area of political trips.
Low-cost airline boost
With industry giants such as Monarch and Thomas Cook out of the way, the rise of low-cost airlines shows no sign of slowing down. Shares of Ryanair /zigman2/quotes/205429530/delayed IE:RY4C -0.43% /zigman2/quotes/202851567/delayed UK:RYA -0.48% and easyJet /zigman2/quotes/202825892/delayed UK:EZJ -2.71% both jumped on Monday.
Yet budget carriers will still face sectorwide issues, including fuel costs, warm weather and the rise of staycations. Rival Tui’s stock has fallen 20% so far this year but enjoyed a 6.8% bounce after Thomas Cook’s collapse was confirmed on Monday.
But it may take more than the demise of Thomas Cook to breathe new life into the travel-operator industry.
The future of package holidays
Tui has experienced similar problems to its now-defunct rival. Its tour operations and airlines division has been hit by warm weather, overcapacity and uncertainty related to the U.K.’s looming departure from the European Union. But having taken prudent steps to diversify risk, the company’s hotels and resorts arm, as well as its cruise operations, have remained strong.
Jet2 owner Dart Group, which climbed 6.2% on Monday, has seen demand for its package holidays increase in 2019, defying the wider trend. The company said its prices still needed to be enticing as “less confident consumers” were booking holidays later than in previous years and warned the industry was facing fuel-cost pressures.
Tui and Jet2 have shown that the demise of package holidays does not need to be fatal, but they have their work cut out to compete with online retailers amid mounting headwinds.