No-Fly Zone

Thomas Cook cooked

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What's going on?

On Monday, 178-year-old travel company Thomas Cook collapsed after last-minute bailout talks with lenders fell through. Vacation’s off, kids…

What does this mean?

Thomas Cook might seem like the latest in a line of British companies that have been grounded. But make no mistake: this isn’t another Debenhams, where the company keeps operating under the control of lenders (i.e. in administration). Thomas Cook went into “liquidation”, which means it immediately ceased trading – stranding thousands of people abroad. Its assets will now be sold off to pay back its lenders, but most investors won’t see a penny (tweet this).

This wasn’t a huge surprise: Thomas Cook has been struggling to achieve lift-off alongside low-cost rivals and online services. Last year, it issued a profit warning and canceled its dividend, but its debts still soared to $2 billion. A $1 billion rescue deal was almost agreed last month, but when existing lenders found out the airline needed another $250 million to stay airborne, they cut their losses – and Thomas Cook’s lifeline.

Why should I care?

For markets: Different flight paths for different folks.

While many investors wanted to see Thomas Cook’s bailout deal take off, others moved to stop the deal. They’d bought “credit default swaps”, which pay out if a company collapses. These swaps rise in value as the company becomes more likely to default. But the rescue deal would have abolished the debt, making the swaps worthless. As it stands, hedge funds invested in credit default swaps look set to make $250 million.

The bigger picture: Turbulent times for traditional travel.

Thomas Cook’s younger rival Tui saw its shares rise 7% on Monday. But the package holiday company doesn’t come close to the might of digital firms, like the $86 billion Booking Holdings (owner of, Priceline, and Kayak) and $20 billion Expedia (owners of and trivago). Teamwork, it seems, makes the dream work.

Originally posted as part of the Finimize daily email.

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