The collapse of British tour operator Thomas Cook is “credit negative” for Greek and Cypriot banks because it reduces the cash flow of businesses in the tourism sectors of these countries, ratings agency Moody’s said in a report on Thursday.
“The compulsory liquidation of Thomas Cook and the resultant decline in tourism revenue and investment in these three countries will weaken the credit standing of businesses that worked with the now failed company and relied on payments from it, such as hotels and related businesses, including small enterprises that provide auxiliary services,” said the Moody’s analysis.
This development will result in a reduction in tourism revenue and investment in the two countries, the report said, adding that it may even lead to business closures. It could also affect other sectors linked to tourism, such as transport and trade.
Each hotel has a separate contract with Thomas Cook, but according to reports, the company would owe significant amounts to hotels for stays in July and August because in certain cases it made payments 60-90 days after the trips.
Moody’s said the exposure of Greek banks to businesses (hotels and restaurants) that worked with the bankrupt company was 10.8 percent, and 13.9 percent for Cypriot lenders at the end of March 2019.
The firm recommends that immediate action be taken by the Greek government to mitigate the impact and notes that a positive development would be the replacement of Thomas Cook by another travel agency in the coming months, stresses kathimerini.
Thomas Cook employed around 1,000 people in Greece and accounted for around 3 million tourist arrivals per year, or about 9% of the country’s total arrivals of 44 million in 2018, as per Bank of Greece data.
Thomas Cook had a particularly strong presence in Crete and Cos, where around 70% and 25% of the two islands’ hotels, respectively, had contracts with the company.
The effect of Thomas Cook’s liquidation on Cyprus’ tourism sector is also likely to be substantial. Around 250,000 tourists annually travel to Cyprus with Thomas Cook and generate revenue of €187 million.
In 2018, tourists traveling to Cyprus with Thomas Cook accounted for around 6%-7% of total arrivals.
The effect on Cyprus may be less pronounced than on Bulgaria and Greece, however, because companies affiliated with Thomas Cook that bring a large number of tourists to the island currently appear not to be affected by the company’s collapse, notes financial mirror.