Saga insisted that it met its 2019-20 cruise revenue targets despite the over-50s travel and insurance group suffering a slump in half-year profits.

The group today revealed a 52.1% fall in overall pre-tax profits to £52.6 million year-on-year in the six months to July 31.

Saga’s cruise business fell into the red with an underlying loss of £3.4 million against a profit of £4.7million in the same period in 2018.

This was due to the sale of old ship Saga Pearl II and a “consequent short-term reduction in revenue”, as well as training, launch, marketing and finance costs supporting new addition Spirit of Discovery, the first of two new ships.

Saga’s tour operations also suffered a drop in demand in the period due to Brexit uncertainties and discounting.

Underlying tour operating pre-tax profits halved to £4.2 million from £8.4 million a year earlier, with revenue down to £176.9 million from £182.4 million and a fall in gross margins from 20% to 17.6% “reflecting competitive pricing across the sector”.

Forward tour operator sales for 2019-20 departures are down by 8.9% to 157,400 and by 9.6% to 43,600 for 2020-21.

Saga said: “Cruise revenue targets for 2019-20 have been fully achieved, with forward bookings of more than 50% of the 2020-21 target, with capacity days increasing by 28% next year.

“These sales support our target of £40 million of ebitda [earnings] per annum from each new ship.”

Outgoing CEO Lance Batchelor said: “Spirit of Discovery is now fully operational, delighting customers, and delivering on our targets for filling additional cruise capacity into next year.

“Customer feedback on our cruise offering has been fantastic.

“Forward bookings of over 50% to date, of the significantly increased capacity we are offering for 2020-21, underpin our ebitda target for each new ship of £40 million per annum.

“In tour operations we are adapting to a challenging market by building on differentiated tours and river cruise.”

He partly attributed the fall in profits in the six months to the short-term impact of the retirement of Saga Pearl II.

However, Batchelor said the group’s full year pre-tax profit guidance of between £102 million and £120 million remains unchanged.

Saga revealed that 3,500 cruise bookings were sold to members of its Possibilities membership scheme in the first half compared with an aspiration to sell 4,000 travel passenger bookings by the end of the year.

“Importantly, over 65% of these bookings were first time cruise travellers with us,” Batchelor added.

He added: “We are less than a year away from the delivery of our second ship, Spirit of Adventure, which will complete the transformation of our cruise business.

“The performance of our tour operations business reflects challenging markets in which the continued Brexit uncertainty has impacted customer demand.

“The underlying profit before tax of £4.2 million has been impacted by lower gross profits resulting from fewer passengers and a high level of discounting across the industry.

“These factors are not expected to continue into the second half given our visibility over forward bookings.”

The group said progress has been made “in the acceleration of its tour operations transformation” evident in its change in passenger mix – a 19% decline in commoditised hotel package ‘stays’ and a 15.4% and 7.1% increase in differentiated river cruise and escorted tours, respectively.

The impact of this mix change is reflected in a 2.8% increase in average revenue per passenger, according to Saga.

Company chairman Patrick O’Sullivan added: “It is early days in our transformation programme and there remains much to do but what we have seen so far gives us confidence that we are pursuing the right strategy.

“The board believes in the opportunity for and ability of the group to return to sustainable growth and restore value for all shareholders and is supporting the executive team as they focus on the profitability of our core travel and insurance businesses as well as the capital efficiency of the group.

“There is real strength in the Saga brand. In order to maximise its potential and realise the value of our strategy we need to serve our customers well with the right products and great service so that we continue to deserve the trust they place in us.”

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