The collapse of a travel firm hits tourist hot spots hard — just ask Iceland

When an airline goes under, it doesn’t just inconvenience travelers. It can also put a major dent in a country's economy.
Image: Passengers are silhouetted in front of a closed service counter of travel agent Thomas Cook and airline Condor at the airport  in Frankfurt
Passengers are silhouetted in front of a closed service counter of travel agent Thomas Cook and airline Condor at the airport in Frankfurt, Germany, Sept. 24, 2019.Kai Pfaffenbach / Reuters

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By Alyssa Newcomb

The collapse of a travel company or airline doesn’t just affect the travelers stranded abroad. It can also have a massive negative impact on a nation’s economy.

British travel firm Thomas Cook, which operates thousands of hotels and four airlines, announced on Monday that it had failed to secure a bailout from lenders and would be going out of business. While hundreds of thousands of tourists are forced to find a new way to get home, the closure could have a devastating impact in the tourist resorts and cities where Thomas Cook-operated hotels dominate.

The budget travel company had plans to open six new hotels this year in Spain, its biggest market; and four in Greece, in addition to 10 others in vacation destinations around the world. The shutdown could at least ding some of these local economies that rely on tourism revenue, according to Hayley Berg, economist for travel app Hopper.

“Without this guaranteed annual demand from U.K. tourists to Thomas Cook-sponsored destinations, many of these local economies and businesses could face an uncertain future,” Berg told NBC News.

It’s a pain that Iceland has already experienced, after budget Icelandic carrier Wow Air shut down in March. The repercussions of the Wow Air collapse extended all the way to Iceland’s tourism sector and economy, which welcomed 2.3 million visitors last year, according to the Icelandic Tourism Board.

Following the collapse of Wow Air, the nation's economy would contract by 0.4 percent, said the Icelandic Central Bank. The unemployment forecast also rose to 3.9 percent, up from the previous 3.1 percent. Credit agency Moody’s issued a statement in April that showed Wow Air’s collapse would put a dent in the country’s economic growth this year.

A shutdown of this magnitude isn’t just about the 21,000 employees affected by the collapse of Thomas Cook. Berg said economies of tourist hotspots are “fragile.” Tour guides, activity-based businesses, hotel workers, and transportation companies can also quickly feel the repercussions.

“As the tourism industry slows, companies will reduce the number of seasonal workers they hire, or shut down altogether," said Berg. "The economy built around the tourism industry, everything from seasonal housing to grocery stores, will also suffer from low demand following the drop in employment and income for residents. Economies built on tourism with little diversification are very much at risk if the level of tourism drops for any reason.”

Economies built on tourism with little diversification are very much at risk if the level of tourism drops for any reason.

The collapse of Thomas Cook comes at a time when airlines are being squeezed more than ever due to increased competition from low cost, “no frills” carriers.

U.K. Prime Minister Boris Johnson said on Monday that the beleaguered travel company had made a request for a government bailout of 150 million pounds ($186 million). However, Johnson said a bailout package would have created a “moral hazard in the case of future such commercial difficulties that companies face."

With Thomas Cook out of the market, supply has decreased, sending airfare prices skyrocketing to meet demand, said Helal Miah, an investment research analyst with The Share Centre. He predicts it will be to the benefit of two low-cost European carriers.

“Ryan Air and Easy Jet are going to be picking up some of that customer base,” he said. “While they started as budget airlines, they have been diversifying recently and offering more packages.”