THOMSON Holidays is planning to slash capacity by 9% for summer 2000 as it looks to increase margins following a second profits warning in two months.
It will mean the operator will have to axe an estimated 300,000 holidays.
The move follows a dire half-year performance from the operator which led theCity to revise its year-end profit forecast from £110m to £85m.
It also comes in the wake of a tough lates market for the operator with Thomson Travel Group acting chief executive Roger Burnell warning that sales in September and October are struggling.
He admitted capacity will be cut as part of a series of measures designed to halt the operator’s slide.
“I am focused on making this business as profitable as it can be,” he said after revealing a £5.1m loss in the first six months of the year. “We are reducing capacity and concentrating on putting holidays on sale with good margins. We will do this whatever happens to Airtours and First Choice.”
Burnell declined to reveal the extent of the capacity cuts but sources close to the company said between 8%-9% will be sliced off 1999levels. The focus on profitability ends Thomson’s obsession with being number one with Burnell saying he now wanted Thomson to be “number one in terms of profitability.”
“Volume is not the be all and end all,” he said.
Industry observers said the operator desperately needs to improve its ratio of brochured to late sales by reducing capacity.
“Thomson did not have the distribution network to sustain its natural market share. It needs to bring the two closer together,” said one. “If that means losing its market leader position then so be it.”
Burnell has already drafted in outside consultants to review all aspects of the business which is expected to take several months.
He declined to say whether jobs would go but cost cutting is believed to be central to the review.
Burnell stressed that a better balance of retail and direct distribution channels was also crucial in improving the company’s fortunes.
“Distribution is a critical part of our strategy,” he said. “We are are not going to go out and buy a large amount of additional shops. We need a better mix which is why we have invested in the Teletext market. Internet and digital TV will also play an increasingly important role and e-commerce will revolutionise our industry.”
Burnell is among a number of Thomson Travel Group directors who last week took advantage of the company’s floundering share price to buy £360,000 worth of shares in the company.
Despite the planned cuts, Thomson is expected to launch its long awaited-budget brand aimed at couples this week.
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