Summer heatwave sees Thomas Cook profits slump

Thomas Cook today revealed a £58 million slump in annual profits to £250 million following poor heatwave-hit summer trading.

The lower earnings were mainly blamed on discounting in the lates market with the UK performance described as “particularly disappointing”.

This resulted in an £88 million fall in tour operating profits for the year to September 30 as the summer heatwave hit bookings.

The disclosure came just two months after it posted a profits warning and sent shares in the company tumbling by 28% in early trading this morning.

The company issued an update on its full year results two days ahead of the planned publication of full financial numbers as it suspended its dividend for the year yet said group revenue was up by 6% to £9.6 billion.

Thomas Cook is to “address performance” in its UK tour operating business following the latest profits warning.

Priorities outlined for 2019 include an improvement in the selling of higher margin own-brand hotels and differentiated holidays.

CEO Peter Fankhauser said: “2018 was a disappointing year for Thomas Cook despite achieving some important milestones in our strategy for transforming the business.

“After a good start to the year, we experienced a larger-than-anticipated decline in gross margin following the prolonged period of hot weather in our key summer trading period.

“Our final result is expected to be around £30 million lower than previously guided due to a number of legacy and non-recurring charges to underlying EBIT.

“Within this, profit in our tour operating business fell £88 million as the sustained heatwave restricted our ability to achieve the planned margins in the last quarter.

“The UK was particularly hard hit with very high levels of promotional activity coming on top of an already competitive market for holidays to Spain.”

He added: “We remain committed to our strategy for profitable growth and we’ve made some good progress during the year.

“Looking ahead, we must learn the lessons from 2018 and go into the new year focused on where we can make a difference to customers in our core holiday offering.

“We will put particular attention on addressing the performance of our UK tour operator where the challenges of transformation in a competitive environment remain significant.

“Across the group we will continue to streamline our cost base and manage our capacity to give us greater operational flexibility and financial discipline, while focusing the team on delivering performance improvements and giving customers more reasons to holiday with Thomas Cook.”

Additionally, Thomas Cook reported that sales of holidays to own-brand hotels rose by 15%. The company has a pipeline of at least 20 new hotels for 2019.

Own-brand hotel growth is being accelerated through £150 million fund with a first £35 million of expansion capital.

The strategic integration of Expedia technology and content has taken place in the first five markets.

‘Innovative ancillary services’ are driving growth of 4%.

The company reported strong airline profit growth of £35 million, despite higher disruption costs.

Hannah Maundrell, editor in chief at financial comparison service, said: “This year’s scorching summer may have brightened the spirits of British holiday makers but put a dampener on Thomas Cook’s profits.

“Us Brits normally travel far and wide in seek of summer sunshine but this year it landed right on our doorstep meaning many of us put off the expensive summer holiday in favour of something cheaper and closer to home. This was bad news for Thomas Cook who rely on summer holidays bookings for the bulk of their profits.

“The fluctuating exchange rate has also been a worry for some, knowing that the pound just won’t stretch as far as it used to.

“Thomas Cook will be hoping for a long wet summer next year to buck this trend. If it’s anything like this year though the staycation will become more and more popular and people will opt to get their dose of sunshine a bit closer to home.”

More: Thomas Cook launches hotel booking platform with Expedia

Thomas Cook hotel fund receives €40m to buy properties

Summer heatwave hits Thomas Cook profits [September 18]

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