Brexit is putting a “clear dampener” on consumers’ willingness to commit to holidays in 2019, Saga disclosed today.
The warning came as the over-50s company’s travel division reported its fifth successive year of profit growth in2018 with a 2.4% rise to more than £21 million with the help of strong forward cruise bookings.
Underlying pre-tax profit from cruise rose to £6.9 million from £6.5 million in the previous year as revenue went up to £96.6 million from £88.2 million.
Tour operating saw profits almost static at £14.2 million on revenues of £360.8 million.
However, the overall Saga Group, which also has retail broking and insurance interests, revealed a pre-tax loss of £134.6 million after a £310 million impairment charge relating to its insurance operations in the year to January 31.
It expects underlying profit before tax for the 2019-20 financial year to be between £105 million to £120 million.
The group is to make a “fundamental shift in strategy” to address “long-term challenges” across the organisation, including accelerating the transformation of its tour operations.
“Our travel strategy is to become a specialised operator, focusing on cruise and differentiated experiences in tour operations,” Saga said.
Bookings for two new ships were described as being “on track” while a review of the firm’s river cruise ship fleet has started with an order for two purpose-built vessels.
But group CEO Lance Batchelor said: “Brexit is putting a clear dampener on customers’ willingness to commit to holidays in 2019.”
While tour operations maintained profitability last year, parts of that business are under pressure both in terms of volumes and margins, he admitted.
Forward tour operations revenue for 2019-20 is currently down 3.4% year-on-year, impacted by “recent market weakness, particularly in short-haul holidays”.
“Brexit uncertainty has been a significant contributor to this shortfall and booked revenues were 7.6% down in the 12 weeks to 23 March 2019,” the company said.
“However, the mix of business continues to move to higher margin and more differentiated products, notably escorted tours, rivers and third party ocean cruising.
“Cruise ticket revenues and passengers for 2019-20 departures are up 17.7% and 17.8%, respectively.
“This reflects the requirement to fill the additional capacity of the first new ship, Spirit of Discovery, as the Saga Pearl II exits service. The increase in capacity days is 19% weighted to quarters three and four as the business sees the full impact of the larger new 999-berth vessel.”
Batchelor said: “Our cruise offering is a brilliant example of a product that is already highly differentiated and competitively priced.
“The transition to two new ships and resultant upgrade in the offering is an example of how we are changing Saga.
“We need to do the same thing in tour operations, and move faster to become a differentiated, niche provider of great customer experiences.
“This might mean that overall volumes remain at current levels, but we expect our margins to increase in line with those of best in class specialist travel companies, reflecting the quality of the product.”
He added: “We have seen the extraordinarily rapid build, to schedule, of Spirit of Discovery, our first ever purpose-built cruise ship during 2018.
“Spirit of Discovery will carry her first passengers in July 2019.
“Our second new ship, Spirit of Adventure, is due to be delivered in summer 2020.
“Forward bookings for both ships are on track. They are each expected to deliver circa £40 million EBITDA [earnings] per annum.
“This will be transformational for the future profit trajectory of our travel business.”
The company added: “Our strategy in tour operations will be to accelerate our move away from undifferentiated, low value products, such as short haul, to higher value, more differentiated segments such as escorted tours, third party cruises and river cruises.
“We are starting to renew our river ship fleet, and have recently ordered two purpose built vessels on long-term lease agreements.
“While we do not expect significant growth in tour operating revenues, this forward transformation is expected to lead to improved margins in the next few years.”
Looking forward, the firm added: “We proved in 2018 that our cruise strategy is working and we will accelerate our efforts in tour operations to match the progress we’ve made in cruise.”
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