U.K.-based tour operator Thomas Cook’s liquidation stranded some 600,000 of its customers this week, but the sudden closure may have lasting effects for travelers around the globe, making flights in Europe more expensive, but some destinations cheaper.
Hundreds of thousands of travelers were stranded after the company shuttered operations Monday. The situation prompted the largest peacetime repatriation of U.K. citizens in history, as the British government scrambled to charter planes to bring tourists back from around the world.
Many travel-insurance policies include coverage for ‘financial default’ of a travel provider.
As a tour operator, Thomas Cook specialized in offering all-inclusive travel packages to popular destinations, especially in the Mediterranean. The company also operated an airline and owned more than 200 hotels.
The company blamed the ongoing Brexit negotiations and hot weather that made Britons less interested in traveling for its recent woes. But Thomas Cook also fell victim to the rise of online travel booking services such as Expedia EXPE, +0.75%, Booking.com BKNG, +0.15% and TripAdvisor TRIP, +0.63%, which have made it easier and, sometimes, cheaper to plan travel online, travel experts said.
Read more: When you should use travel booking sites like Expedia and Priceline — and when you shouldn’t
Using a tour operator may seem unusual to Americans, but it is still a more popular choice among travelers from Europe. Around 40% of British travelers going on an international trip use a travel agency, compared with less than 20% of U.S. travelers doing the same, Kyle Valenta, executive editor of travel review site and TripAdvisor subsidiary Oyster.com.
“Americans travel internationally to a far lesser degree than their European counterparts,” Valenta said. “Since Americans tend to drive or fly domestically more than U.K. citizens, the need for someone to provide all logistical support, like a travel agency, is diminished.”
Indeed, hundreds of thousands of people had trips planned with Thomas Cook in the months ahead — vacations that are now in jeopardy thanks to the company’s liquidation. Here are some of the ripple effects the company’s closure will have:
Not all travel-insurance policies will cover situations involving bankruptcies
The good news: Thomas Cook customers are protected by the British government. The U.K. requires most tour operators to hold Air Travel Organisers’ Licensing (ATOL). Operators who hold this license pay into a national fund when they book trips, and that money is set aside in the event that the operator goes out of business.
Thomas Cook held an ATOL license, which is what has enabled the British government to organize the repatriation effort and fly people back to the U.K. from the destinations they traveled to around the globe. The fund will also pay people back for money spent on upcoming trips through Thomas Cook.
Unfortunately, not all Thomas Cook customers will qualify for this assistance, as it is reserved for people who booked all-inclusive packages. Those who simply purchased airfare from Thomas Cook will have to rely on other avenues for getting reimbursed.
“ATOL Protected passengers with future bookings are entitled to a full refund for their cancelled holiday,” the U.K.’s Civil Aviation Authority said Monday. “Passengers currently overseas may also make claims for the cost of replacing ATOL protected parts of their trip, or for out of pocket expenses as a result of delayed flights home.”
The government plans to launch a service to manage refunds by Sept. 30.
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Americans, meanwhile, have no such protections. Therefore, travelers should consider purchasing travel insurance (or using a credit card with thorough travel insurance protection) if they are worried about a company going bankrupt.
Insurers may require that travel insurance policies be purchased 15 days or more before a travel provider went bankrupt to reimburse a traveler.
“Many travel insurance policies include coverage for ‘financial default’ of a travel provider,” said Steven Benna, content director at travel insurance website Squaremouth.com.
Travel providers can include airlines, cruise lines, hotel chains and, yes, tour operators. But there can be some catches. “Financial default coverage may not cover travelers if they booked directly through Thomas Cook,” Benna said. “This is because some policies do not provide coverage if the company that solicits the travel insurance goes bankrupt.”
Some insurers may also require that the insurance policy in question be purchased 15 days or more before the firm in question went bankrupt, said Stan Sandberg, co-founder of TravelInsurance.com.
For those looking to book with American-based tour operators, go through a company that’s a member of the National Tour Association, as members are required to carry insurance policies to protect their clients, according to Bob Rouse, the organization’s vice president.
Plane tickets could become more expensive — especially with low-cost carriers
As a low-cost carrier, Thomas Cook competed with the likes of EasyJet EJTTF, -15.75%, Ryanair RYAOF, -0.81% and other European airlines that offer rock bottom prices, such as a $25 fare from Dublin to Athens on Ryanair. The airline didn’t just serve people who had booked all-inclusive packages — in fact, other tour operators often booked their clients on Thomas Cook flights.
But with this airline gone, there’s one less cheap option for travelers. And that could give low-cost carriers the room to raise prices.
“Most European airlines have been complaining for years that there is too much capacity in the market,” said Patrick Whyte, Europe editor for travel industry website Skift. “With less competition, prices don’t have to be as low, so customers might find their flights cost more, especially on routes where Thomas Cook was the primary competition.”
With less competition, prices don’t have to be as low, so customers might find their flights cost more.
Some destinations may offer special deals to make up lost revenue
The Thomas Cook bankruptcy will hit some popular tourist destinations especially hard. “Certain travel markets like Greek island Crete are concerned that the fallout of Thomas Cook will have a significant impact on their inbound tourism market,” said Erika Richter, director of communications for the American Society of Travel Advisors. “It is possible that other destinations that rely heavily on inbound travel from the U.K. market may also suffer.”
The Greek tourism sector is expected to endure economic losses of between 250 million euros and 500 million euros (roughly between $275 million and $550 million), according to a report from Greek newspaper Kathimerini, based on data from the country’s tourism confederation. Similar concerns have also been raised in Spain.
Also see: These stocks could profit from the collapse of the package-holiday provider Thomas Cook
Some hotels — especially around the Mediterranean — only booked Thomas Cook travelers. And in smaller towns, the entire area’s economy could center on the influx of tourists Thomas Cook brought in.
These regions will need to recoup the business that has been lost because of the Thomas Cook meltdown — and as a result, savvy travelers could be able to find some competitive deals.
“Local vendors who organize excursions in places like Greece or Spain, which used to see a lot of package holidays booked through Thomas Cook, might feel compelled to lower prices to make up the lost business,” said Scott Mackenzie, founder of tourism website Travel Codex.
Mackenzie estimated that these effects may last for no more than a year, particularly as other tour operators step in to scoop up Thomas Cook’s former clients.
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