Thomas Cook margins in the UK remain under pressure despite cutting capacity in the face of £25 million of quarterly group losses due to political unrest in the Middle East and North Africa.

The group expects a “similar disruptive effect” will continue into the summer peak.  

“This impact is a result of low volumes and margins in the affected areas where we have been operating at approximately 60% of normal levels,” the company said in its interim management statement for the three months to June 30.

Underlying operating profit for the quarter was down to £20.1 million from £25.8 million for the same period in 2010. The group expects a full year operating profit of around £320 million.

The previously announced “fundamental review” of the under-performing UK business will include enhancing multi-channel distribution, efficiency of the agency network, a review of its in-house airline, improved pricing, better product differentiation and leveraging the strength of the Thomas Cook brand.

“The board have begun to review these plans and we will update the market on the strategic direction of the UK business in due course,” the company said while confirming the exit of group CEO Manny Fontenla-Novoa with immediate effect and his replacement on an interim basis by deputy CEO Sam Weihagen.
Summer trading in the UK has seen average selling prices rise by 4% over last year with booking levels flat on a 1% drop in capacity.

“In the UK we continue to keep prices competitive and generate improved load factors although margin is still below prior year,” Thomas Cook said. “Capacity has been reduced slightly and we have 5% fewer holidays left to sell. Booked load factor is 84%, slightly ahead of prior year, whilst departed load factor remains in line with prior year at 96%”.

Bookings for the coming winter are “progressing well” with the programme 22% sold in the UK and 28% sold in Northern Europe.

Group revenue for the three months was up by 13% to £2.4 billion. Exceptional operating costs for the period came in at £35.3 million compared with £75.1 million in the equivalent period last year. Net debt stood at £902.5 million, down by more than £190 million since March. The group has available cash and banking facilities of around £902 million but plans to make £200 million in disposals of hotels and other surplus assets over the next six to 18 months.

Chairman Michael Beckett said: “The board is focused on restoring market confidence in the group, which has been impacted by concerns over debt levels and the poor performance of our UK business.

“We are taking actions to strengthen the balance sheet, including a disposal programme that we expect to raise up to £200 million.In addition, Sam Weihagen’s extensive experience in the travel industry will be invaluable in guiding the UK through its strategic and operational review.

“Our brands and our businesses outside the UK continue to perform well and we are determined to create a stronger foundation for profitable growth.”