(qlmbusinessnews.com via telegraph.co.uk – – Tue, 27th Nov, 2018) London, Uk – –
Thomas Cook has shocked investors with its third profit warning in quick succession after it was forced to slash prices in a bid to win customers who chose to enjoy the UK heatwave this summer rather than travel abroad.
Shares in the company plunged by around a third on Tuesday after the travel company suspended its dividend on the back of weakness in its tour operator which failed to offset a better performance from its airline.
Profits for this year will be £30m lower than previously guided, Thomas Cook said in an unscheduled announcement. The update follows profit warnings in July and September.
Chief executive Peter Fankhauser blamed “a number of legacy and non-recurring charges” for its latest downgrade. The company has been hurt this year by flight disruption and restructuring costs, as well as dwindling demand for its tour holidays amid the heatwave.
“2018 was a disappointing year for Thomas Cook,” said Mr Fankhauser, as the company insisted it was operating in within banking covenants.
The company reported that underlying earnings were £250m for the year to Sept 30, and revenue was up 6pc on a like-for-like basis, reaching £9.58bn.
However, earnings in the tour operator division dropped by £88m due to a higher-than-anticipated decline in margins as Thomas Cook slashed prices to keep up with competitors.
The company said the warm weather in Europe meant many customers had delayed holiday-booking decisions, with the UK particularly slow.
Jefferies analyst Rebecca Lane wrote: “A weak performance in tour operator outweighs surprising strength in the airline.”
Ms Lane suggested that the final three months of the calendar year is when travel operators' balance sheets are “most stretched”.
She added: “Thomas Cook has announced that it is compliant with its bank covenants and that it has headroom for future covenant tests. We hope for more colour on ‘future tests' at the presentation.”
Mr Fankhauser said: “Looking ahead, we must learn the lessons from 2018 and go into the new year focused on where we can make a difference to customers in our core holiday offering.
“We will put particular attention on addressing the performance in our UK tour operator where the challenges of transformation in a competitive environment remain significant.”
Thomas Cook said it would focus on driving awareness and take-up of its own brands in the UK during 2019, as well as increasing its flexibility and reducing costs.
Bookings for the upcoming winter season are currently down 3pc in the tour operator division, but airline bookings are 11pc ahead of last year
With the UK sweltering under the joint hottest summer on record, customers shunned last-minute getaways, which meant Thomas Cook was forced to discount hotels rooms in a fiercely competitive market.
By Oliver Gill
