Thomas Cook Group suffered a dramatic plunge in winter half-year losses to £1.45 billion while issuing a fresh profits warning.
The pre-tax figure for the six months to March 31 compared with a loss of £303 million in the same period in 2017-18.
The company blamed an impairment of more than £1 billion in the UK business relating to the merger with MyTravel in 2007.
Update: Thomas Cook Group shares in freefall
This goodwill and brand name intangibles write down “largely relates to amounts recognised in the 2007 merger between Thomas Cook and MyTravel, and impacts brands related to the former MyTravel business”.
Podcast: Who might buy Thomas Cook?
Shares in the company fell by up to 19% to 18.72p in early trading this morning.
Thomas Cook revealed that “multiple bids” had been received for its airline, which has 105 aircraft, from undisclosed suitors.
The company admitted to “challenging trading” for summer 2019 with economic and political uncertainty leading to “high levels of promotional activity”.
Discounting, along with higher fuel and hotel costs, will impact progress on the group’s full year financial performance.
A £300 million bank facility has been secured to provide additional liquidity for winter 2019-20.
The company’s overall summer programme is 57% sold with group tour operator bookings “broadly consistent” with capacity cuts made to better manage our operational risk throughout the year.
As a result, while tour operator bookings are down 12%, pricing is up in all key segments, and 2% higher overall.
“We continue to see strong demand for Turkey, Egypt and Tunisia as customers are attracted by our great value offer of high-quality hotels and increased flight capacity,” Thomas Cook said.
“Bookings to the Spanish Islands are lower than last year following our decision to significantly reduce tour operator capacity for the summer.
“In the UK, the political uncertainty related to Brexit over recent months has led to softer demand for summer holidays across the industry.
“While our booking position remains ahead of the capacity reductions in the tour operator, the trading backdrop remains highly competitive, leading to increased levels of promotional activity.”
And the company admitted: “We have seen no tangible change to booking patterns in recent weeks since the announcement of a delay to Brexit, although we will shortly start to lap a weaker comparative period.
“As we look ahead to the remainder of the year it’s clear that, notwithstanding our early decision to mitigate our exposure in the ‘lates’ market by reducing capacity, the continued competitive pressure resulting from consumer uncertainty is putting further pressure on margins.
“This, combined with higher fuel and hotel costs, is creating further headwinds to our progress over the remainder of the year.
“As a result, we now expect underlying EBIT [earnings] in the second half to be behind the same period last year although, as previously advised, operating profit will reflect significant reductions in separately disclosed items.”
UK tour operating losses in the six months deteriorated by 25% in the period to £103 million despite a rise in sales with good demand for Turkey and Egypt.
But margins remained under pressure “given the level of competition in the market and the uncertainty surrounding Brexit”.
Overall tour operating revenue fell by £91 million year-on-year to £2.28 billion with revenue growth in the UK being offset by lower revenue in continental Europe and northern Europe.
“Demand for our holidays has been weaker due to economic and political uncertainty, the impact of hot domestic weather last summer and environmental concerns in the Nordics,” the group said.
“This has impacted the ability of the group tour operator to pass on cost increases to customers and, as a result, despite a reduction in operating expenses, the seasonal underlying EBIT loss increased by £70 million to £157 million.”
Chief executive Peter Fankhauser said: “The first six months of this year have been characterised by an uncertain consumer environment across all our markets.
“The prolonged heatwave last summer and high prices in the Canaries reduced customer demand for winter sun, particularly in the Nordic region, while there is now little doubt that the Brexit process has led many UK customers to delay their holiday plans for this summer.
“Our loss from operations for the period was £1.4 billion, which reflects a non-cash impairment of historic goodwill, largely related to the merger with MyTravel in 2007 which we have re-valued in light of the weak trading environment.
“Our current trading position reflects a slower pace of bookings, against a strong first half in 2018, and our decision to reduce capacity in order to mitigate risk in the tour operator and allow our airline to consolidate the strong growth it achieved last year.
“Despite this more challenging environment, we have made good progress on our strategy of differentiation.
“Following the announcement of the strategic review of our group airline in February, we have received multiple bids, including for the whole, or parts, of the airline business.
“As we assess these bids, we will consider all options to enhance value to shareholders and intensify our strategic focus.”
He added: “We are well advanced in our aim to build our position as one of the leading sun and beach hotel companies in Europe.
“In the last two months alone, we’ve opened 12 new own-brand hotels out of a pipeline of 20 for 2019, reinvigorating key destinations across the Med with four new Cook’s Clubs, and launching our first family Casa Cook in Crete.
“Outside of Europe, we have taken an important next step in the development of our China joint venture with the announcement of two new hotel projects in partnership with Fosun, including our first Casa Cook in Asia. We have also secured a leading position in the Russian market with the development of a new joint venture to buy the number one tour operator Biblio Globus.
“Taking lessons from 2018, we have put a keen focus on cash and cost discipline across the group in the first half. We have also accelerated the transformation of our UK business, including the closure of 21 UK retail stores and a review of Thomas Cook Money.
“A range of further cost efficiencies are planned for the second half, allowing further investment in our growth strategy.
“As we look ahead to the remainder of the year, it’s clear that, notwithstanding our early decision to mitigate our exposure in the ‘lates’ market by reducing capacity, the continued competitive pressure resulting from consumer uncertainty is putting further pressure on margins. This, combined with higher fuel and hotel costs, is creating further headwinds to our progress over the remainder of the year.”
Alex Brignall, travel and leisure analyst at City broker Redburn, said: “Due to challenging trading conditions in the first half of the year the company has cut full-year EBIT guidance by 40%.
“Perhaps more significantly it has secured financing through next winter giving it time to sell the airline, for which it has received multiple bids at good levels, implying a valuation of up to £1bn which would be a very positive outcome.”
*Thomas Cook’s woes:
The travel group put its airline business up for sale in February following a poor financial performance last year which led the company to issue two profit warnings.
In March Thomas Cook announced it was closing 27 shops and putting 320 staff under consultation.
Reports in April suggested a review of the group’s airline had unlocked interest from possible bidders for part or all of Thomas Cook.
The group yesterday confirmed it had started consultation with staff over 100 job losses at its UK headquarters in Peterborough.
Update: Thomas Cook Group shares in freefall