Thomas Cook is to take action to address issues at its UK tour operating business while revealing an annual loss of more than £160 million just two days after issuing a surprise profits warning.

Agency branches are to be combined with Thomas Cook Money “to optimise store profitability” as part of the action plan.

There are no shop closures planned as part of the strategy, chief executive Peter Fankhauser confirmed to the BBC, adding that there was no drop in consumer confidence for 2019.

The travel giant, which saw its share price tumble following Tuesday’s announcement, today confirmed that underlying profits to September 30 slumped by £58 million year-on-year to £250 million.

Tour operating profits fell by £88 million as the company was affected by the sustained summer heatwave.

This led to an after tax loss of £163 million against a profit of £9 million a year earlier.

“We are putting particular focus on addressing the performance in our UK tour operator where the challenges of transformation remain significant, operating in a competitive environment with still too many legacy systems and processes,” Thomas Cook said.

“We now have a clear plan of action centred on driving awareness and take-up of own-brand hotels; reducing our committed risk capacity and replacing it with more non-risk, dynamically-packaged product; introducing new automated yield systems; combining our retail stores business with Thomas Cook Money to optimise store profitability; and targeting a best-in-class cost base.

“Across Thomas Cook, we operate in markets that are sensitive to a range of uncertainties, including poor weather and third-party incidents.

“That means we have to manage risk in our financial and commercial commitments.

“As a result, we are making changes to our management of risk internally, the way we set targets for management and how we communicate these externally.”

Airline capacity for 2019 is being cut as part of a focus on higher quality, higher margin hotels and destinations, “with clearer processes and incentives to ensure these are prioritised through our retail and online sales network”.

Looking to next year, Thomas Cook expects to “deliver progress” on underlying earnings leading to “substantial progress” on reported operating profit.

The company reported that online sales increased in all segments in 2018 with particularly strong growth in the UK, up almost 30% year-on-year, the company revealed. Online now accounts for 48% of bookings across the group.

But winter 2018-19 tour operator bookings are 4% down on last year, with UK numbers “broadly flat” at lower margins due to increased capacity in the wider market.

The company revealed a “mixed start” to summer 2019 trading.

UK bookings are positive, while continental and northern Europe bookings are behind a strong start to last year. Tour operator pricing overall is ahead of last year.

Demand for our holidays to Turkey and Egypt is strong, together with good growth in long-haul holidays, particularly to the US.

Fankhauser said: “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.

“Despite the impact of the hot summer, our northern European tour operator achieved a near record performance, albeit lower than that expected at the end of May.

“Meanwhile, our group airline delivered strong growth in customers and profit, up £35 million, benefiting from increasing capacity in a turbulent European aviation sector.”

He added: “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 in 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.”

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