Excess summer capacity has led to “tough” summer trading at Thomas Cook which today issued a warning over full year profits.
Europe’s second largest travel group blamed the heatwave for putting people off booking overseas holidays, triggering higher levels of price cuts in the lates market.
Cook now expects to deliver a full year underlying operating profit of around £280 million, down from its previous estimate of £323 million to £355 million, “of which the greater element of the downgrade is related to the weak trading,” the group revealed in a trading update this morning.
The profits warning saw shares in the company fall by 23%.
Chief executive Peter Fankhauser said: “Summer 2018 has seen a return to popularity of destinations such as Turkey and Tunisia.
“However, it has also been marked by a prolonged period of hot weather across Europe.
“This meant many customers spent June and July enjoying the sunshine at home and put off booking their holidays abroad, leading to even tougher competition and higher than usual levels of discounting in the ‘lates’ market of August and September.
“Our recent trading performance is clearly disappointing.
“However, despite the recent challenges, we continue to make good strategic progress which positions us well to drive further performance improvement; this includes the launch of our Expedia alliance in the UK and Scandinavia, signing our first own-brand hotel in China and lining up a pipeline of ten new Cook’s Clubs in some of our key destinations for summer 2019.”
Looking forward, Cook said: “Trading since the last update has been tough, particularly in the tour operator, where our ability to drive margins in the ‘lates’ market has been further restricted by excess summer capacity.
“In addition, we have reflected the more difficult trading environment for some of our suppliers in our approach to historic hotel recoveries, a non-cash item.
“The impact of the hot summer is continuing to be felt into winter trading. As usual, we will provide detailed guidance for full-year 2019 in November.
“However, despite recent challenges, we continue to make good strategic progress which positions us well to return to profitable growth.”
Thomas Cook’s summer 2018 programme is now 90% sold, in line with last year.
“Pricing across all segments remains higher than last year but, with a higher mix of short/medium-haul airline bookings, overall average selling prices are 5% lower,” the company said.
UK tour operator bookings are in line with last year, while average selling prices are up 7%.
“The slowdown in customer bookings during June and July extended into August, leading to higher than normal levels of promotional activity. This has exacerbated pressure on margins, on top of an already competitive market for Spanish holidays, as previously highlighted,” Cook said.
The winter programme is 43% sold, with bookings 2% behind last year and average selling prices up 1%.
“The UK has made a good start with demand ahead of last year, but this has been offset by a slow start in the Nordics and continental Europe which are experiencing some knock-on impact from the hot summer weather. This has led us to proactively trim capacity in the Nordics by 5%,” Cook said.
“The positive booking trends for the group airline have continued into winter, with double-digit growth in bookings to short and medium-haul destinations, and good growth in long haul.”
Separately, the group announced that chief financial officer Bill Scott has decided to step down and will leave the company on November 30. Sten Daugaard has been named interim CFO. Scott has been with the company since 2012 but has only been CFO since January.
Full year results to September 30 are due to be released on November 29.
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