Holiday prices could rise by 4.5% on average next summer unless tour operators negotiate hard with suppliers, Thomas Cook boss Manny Fontenla-Novoa has warned.
The price increases are likely as a result of the weak pound, which has suffered against both the euro and the dollar. Operators tend to hedge most of their currency in advance, but for 2010, will be forced to base pricing on exchange rates that are poorer than in recent years.
However, group chief executive Fontenla-Novoa is confident Thomas Cook prices will only rise by around 2%-3% next year as a result of negotiating.
He said: “If we do nothing about negotiations with our suppliers, then it will be 4.5%. We need to cover the cost of currency. Prices will have to go up if we do nothing about it,” he said.
Fontenla-Novoa said Thomas Cook is unlikely to reduce UK capacity further for summer 2010, unless the economy worsens significantly, forcing a review.
The travel giant – Europe’s second largest – cut the number of holidays on sale out of the UK by 10% for summer 2009, and by 12% for summer 2008.
Thomas Cook and TUI Travel both have a sensible approach to capacity, he said. “Previously all the management teams at TUI cared about was market share and putting capacity into Coventry and Doncaster; my God, what were they smoking?”
Fontenla-Novoa, speaking after last week’s interim results, said destinations with the biggest drops in bookings out of the UK this year included Mexico, Portugal and Spain.
The outbreak of swine flu in Mexico – which forced Thomas Cook to shift most of its capacity out of the destination – will cost the company between £10 million and £12 million in lost margins and repatriation costs.
The company could cope because the destination makes up just 2% of its total programme, he said, but is unlikely to put capacity back for this summer.
“Demand will not be there for a little while. We have reconcentrated our capacity and cannot keep shifting it around in July and August; we don’t see demand coming back before that,” he added. “The problem is that lots of hotels have shut down.”
Meanwhile, bookings to Portugal are 30% down on last year as a result of the ‘Maddie effect’, two years on from the disappearance of Madeleine McCann.
“Portugal is still hurting because the family market has not recovered,” he said. “It will come back, but it’s just taking its time. I think the Portuguese [tourist authorities] have got it right; they have understood the seriousness of the situation and people’s emotions.”
Holidays to Spain are also still proving “difficult to shift”, because they remain expensive compared with non-euro destinations, despite price cuts by hoteliers, he said.
Thomas Cook’s Spain bookings are 29% down for this summer, with a 41% market share, while Turkey bookings are 21% up, with a 54% market share.