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Thomas Cook: who will be the winners and losers?

The demise of the world's oldest travel agent has given rise to both opportunities and risks for its rivals in a cutthroat industry

TUI AG - The high flyers and low riders of Thomas Cook’s collapse

The abrupt collapse on Monday of the world’s oldest travel agent, Thomas Cook (TC), has resulted in chaotic scenes of holidaymakers attempting to return home amid rampant uncertainty.

While the 178-year old group’s now-former passengers and staff are at the sharp end of its bankruptcy, the exit of one of the travel market’s biggest players has profound implications for its competitors.

TUI

Perhaps one of the biggest winners among the industry’s major players, TUI AG (LON:TUI) has seen its share price spike 7.5% since the news of Thomas Cook’s impending liquidation broke on Monday, with the Anglo-German outfit also promising on Tuesday to use its fleet of aircraft to pick up the stranded customers of its former rival.

Some analysts, such as Stifel, cited TUI as a likely beneficiary of the removal of a major rival in an industry squeezed by savage competition.

READ: TUI promises to pick up Thomas Cook’s stranded customers

However, Morgan Stanley and Barclays offered some words of caution, saying that TUI could suffer from contagion as the collapse may damage consumer confidence in package holiday operators and may make investors uncomfortable owning any shares in the sector.

The alleviation of competition may come as a particular relief to TUI’s business segment, which was the biggest drag on performance in its third quarter when it swung to losses of €103.9mln from a previous profit.

Barclays estimated that if TUI managed to absorb £2bn of lost Thomas Cook revenue it could result in an additional 4% uplift to its underlying earnings (EBITDA) in its 2020 financial year.

Dart Group

Meanwhile, investors Dart Group PLC (LON:DTG), the owner of the Jet2 holiday brand, have been quick to take advantage of the benefits, with the shares having jumped 6.9% to 904p since Monday’s open.

It was singled out by analysts at Stifel as potentially receiving a “big positive” from the collapse of its rival due to the “considerable overlap” between their clientele.

“We see Dart as Thomas Cook's closest competitor, who should be a beneficiary once the dust starts to settle - partly in the Midlands”, Stifel said.

On The Beach

Package holiday seller On the Beach Group PLC (LON:OTB) is in a slightly sticky situation following Thomas Cook’s collapse, as it relied on the travel firm’s aircraft for 15% of its overall flight capacity.

The group is already feeling the consequences of the loss, having issued a statement in the wake of the collapse saying it predicted a “one-off exceptional cost” as a result of having to arrange alternative travel for its guests as well as lost margin from now cancelled Thomas Cook bookings.

READ: On the Beach Group braced for one-off costs to bring Thomas Cook airline passengers home

This may remind some investors of the similar blow suffered by Thomas Cook in 2017 when the failure of UK airline Monarch reduced the availability of airline seats and pushed up prices, resulting in a £2mln hit to its bottom line.

Stifel believes that the impact of Thomas Cook’s collapse on OTB will be “multiples of this”.

However, there is more optimism from OTB’s house broker, Peel Hunt, which said in a note that there was a “potential market share gain opportunity” for the firm through package trips sold both online and through travel agents.

The market also seems upbeat, with the group’s shares having risen 5.4% to 400p since Monday.

The airlines

Aside from the tour and travel groups, the disappearance of Thomas Cook’s 105 aircraft from the skies also offers an opportunity for budget carriers such as easyJet PLC (LON:EZJ) and Ryanair Holdings PLC (LON:RYA), which will now compete to fill the airport slots left vacant by their defunct rival.

Analysts at RBC Capital Markets said that while there was “no single obvious” buyer for the Thomas Cook’s former slots, backfilling of capacity was expected by the 2020 summer period, with the likes of Ryanair and easyJet more likely to “pick off opportunistic assets” than buying up the capacity wholesale.

RBC said easyJet, British Airways owner International Consolidated Airlines Group SA (LON:IAG) and Dart’s Jet2 are likely to pick up Thomas Cook’s slots in London’s airports, while Ryanair and its subsidiary Austrian carrier Lauda are expected to look for opportunities in Manchester and Dusseldorf.

As a result, RBC said Thomas Cook’s capacity would not “die off”, but instead consolidate around the remaining players.

Was Thomas Cook's collapse avoidable?

Thomas Cook’s demise may have come as a shock to its thousands of customers sunning themselves on Europe’s beaches, but many in the City of London have long expected its downfall to be in the offing, with a number of short-sellers positioning themselves to benefit.

On its last day of trading before going bust, the company’s shares had fallen 94% to 3.5p from around 60p this time last year as a series of profit warnings and a mounting debt pile ultimately proved too much to handle.

A £900mln rescue deal seemed within touching distance just last week, with the group’s largest shareholder, Chinese tourism firm Fosun, and a consortium of banks agreeing to stump up the cash in exchange for various portions of the business, effectively wiping out all other shareholders.

READ: Thomas Cook collapses as rescue attempts fail

However, these efforts were scuppered last Friday when a group of lenders including Royal Bank of Scotland Group PLC (LON:RBS) and Lloyds Banking Group PLC (LON:LLOY) demanded the company find an extra £200mln to keep itself afloat over the traditionally quieter winter period.

This proved to be too much and on Monday morning Thomas Cook announced that it would enter liquidation proceedings, putting 22,000 jobs at risk worldwide and leaving around 150,000 UK customers stranded abroad.

Neil Wilson, chief market analyst at Markets.com, said that while there were “plenty of factors” in Thomas Cook’s demise, mainly its massive debts, there were deeper factors at work.

“Ultimately the debt was the symptom of the ailment - Thomas Cook failed because it didn’t move with the times”, he said.

Quick facts: TUI AG

Price: 1063 GBX

LSE:TUI
Market: LSE
Market Cap: £6.26 billion
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