Sam Weihagen, acting chief executive of the cash-starved tour operator Thomas Cook, rebuffs the suggestion that his company is now effectively owned by a syndicate of banks. “Thomas Cook is owned by its shareholders,” he insists.

But following its admission that it is back in talks with the syndicate for another £100m ($156m) , a month after announcing a new £100m short-term loan to prevent banking covenants being breached, the market offered its own assessment. By the end of a torrid day, there were not many shareholders left.

The collapse of the share price to 10.2p, a fall of 75.2 per cent, left analysts questioning the survival of the 170-year-old company. “A descent into the equity abyss,” is how Nick Batram of Peel Hunt described Thomas Cook’s predicament, as he cut his target share price forecast to just 1p.

Thomas Cook’s predicament is the result of a combination of factors, most of which point to problems at the management level. Mr Weihagen referred to “a deterioration in trading higher than expected” as the reason for its decision to delay publication of its full-year results. But others in the industry say the tough conditions are nothing new.

Analysts who had lauded the October loan deal, which at the time drove up shares by a fifth, were this time around casting a more critical eye over the company and the tenure of former chief executive Manny Fontenla-Novoa, which ended in August after the company’s third profits warning of the year.

First in their sights is the weakness in Thomas Cook’s basic product offering. “The UK business is very badly positioned,” says Mr Batram. “The previous chief executive has to take his fair share of responsibility. There are a number of things wrong with the product.”

Chief among these, say industry rivals, is the inflexibility of the group’s holiday offerings. Mr Weihagen says “people go through various cycles in life”, and the shift in consumer attitudes is “more a matter of people wanting more value and security, and of course a differentiated hotel product is easier to sell than a basic apartment”.

Secondly, the company’s aggressive M&A policy suggests that preserving cash was of no great issue. Since it merged with MyTravel in 2007, Thomas Cook has also merged with the Co-Operative Group and bought out Öger Tours in Germany, Intourist in Russia, Elegant Resorts, Gold Medal and Hotels4You in the UK, and TriWest in Canada. It also bought back Thomas Cook brands in Egypt and India.

The company spent about £500m on these deals, according to Thomas Cook insiders, and now employs 30,000 people.

The wisdom of some of these deals has been questioned by analysts. The Co-Op deal, which swelled the number of shops run by Thomas Cook in the UK from about 800 to 1,300, ran counter to the prevailing trend of consumers shifting their holiday-buying to the internet. Thomas Cook has 50 per cent more shops than rival Tui Travel.

One thing that is clear is the damage these deals have done to the company’s balance sheet. Mr Weihagen reiterated Thomas Cook’s desire to recoup £200m through asset sales.

Thomas Cook faces urgent challenges. The first thing it must confront is the impact of its cash crunch on consumer behaviour. That is likely to be exacerbated by a Christmas marketing push by its more financially robust rival Tui to grab market share, which will no doubt allude to the two groups’ relative strengths and weaknesses.

Then it must deal with pressure from suppliers. “Turning the business around will also be tougher as suppliers are likely to be more wary of committing product to the company and extending credit terms,” says Wyn Ellis of Numis.

More immediately, it must complete a new deal with the banking syndicate and convince the market that its financial structure is more secure. Paul Hollingworth, Thomas Cook’s finance director, says: “It’s not a question of running out of cash, it’s about getting an acceptable buffer for a company of this size.” He expresses confidence that a new deal will be done.

Prior to the October loan deal, Thomas Cook had net debt/earnings before interest, tax, depreciation, amortisation and rent of 3.87 times. The deal secured a threshold of net debt/ebitdar of 4.5 times at the end of the year and beyond. The trading deterioration has demanded a rethink.

The main advantage of Thomas Cook is its size. It is too big to fail, says Steve Endacott of travel operator On Holiday Group. “The banks have too much money in it to allow it to fail, the Civil Aviation Authority can’t pull the plug because they would go bankrupt on claims,” he says. “The big damage is to the brand, but it will get out of it.”

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