Thomas Cook’s trading update yesterday was, in the words of one analyst, “a step in the right direction”. At least the City did not pan it. The group’s share price rose 5.7% on the day although, to put this in perspective, the share value increased just 2p.
In truth we got a holding statement ahead of full-year results – and a new chief executive – in late November. The company reported an underlying operating profit “in line with expectations” – i.e. no more profit warnings – it detailed the cuts in the UK business we already know about, and it announced a suspension of dividend payments.
That got the bad news for investors out of the way and, unless something else happens, should mean the share price has bottomed out.
The same analyst told me: “There has been a ‘head in the sand’ approach at Cook. This suggests they are facing up to reality. The banks will cut them a more flexible deal.”
Allied to the Tui Travel trading update last week, Thomas Cook’s statement also gave a good indication of the state of the summer 2011 market and the outlook for the coming seasons on sale.
It is fair to say the summer is ending worse than hoped but better than might be expected. Thomas Cook reported summer sales flat year on year – in line with capacity – and prices up 4%. Tui Travel posted UK mainstream sales down 1% year on year, also in line with capacity, but average selling prices 5% up. The latter’s figures were for the season to September 11 and Thomas Cook’s to September 25.
Tui Travel’s sales since July 31 (i.e. in August and the first week of September) were down 7% on the same time a year ago – suggesting less left to sell at the season’s end than in 2010 and a quieter late sales period.
Given the size of the pair, this must be a fair indication of the market as a whole, and is in line with analyst GfK Ascent’s report as we approached the end of August that package holiday bookings were down 1% year on year.
Tour operators and agents hoped for considerably better following a splendid January. But the state of the UK economy and the profound squeeze on household spending make these better results than they appear.
Both companies reported much better performances in Germany and the Nordic countries, by the way, though not in France, where the market has been hit hard by events in North Africa.
UK bookings for this winter appear to fit the deteriorating consumer outlook, albeit we are early in the booking cycle. Tui Travel reported bookings 11% down, having reduced capacity 7% on last winter – most of it coming out of Egypt and Tunisia. However, the group’s average sales price for winter was up 6%, reflecting rising fuel and accommodation costs.
Thomas Cook posted winter bookings 7% down on a 5% reduction in capacity, but with prices down by 3%. It reported cutting long-haul capacity “significantly”, hence the fall in average sales price.
However, Cook said: “Prices in short-haul are currently ahead of [the] prior year and we expect the average sales price to trend up as the season progresses.”
Cook gave no indication of the market for next summer, but Tui Travel reported summer 2012 bookings down 11% on a year ago with 10% of holidays sold. It anticipates capacity for next summer will be 4% lower than in 2011. However, Tui’s average selling prices for next summer were 10% up so far.
The group noted: “We anticipate cost inflation will be just over 5% [in the UK] for summer 2012. Our prices are designed to recover these costs.”
Winter looks tough – and I reckon it will be – but we can accept Cook’s long-haul explanation. What may prove a worry are the things Cook and Tui can do nothing about – the financial crisis, the global slowdown. The Middle East and North Africa are not about to stabilise, the UK economic outlook is not likely to improve any time soon and a downturn in Germany could make next year’s group figures look a whole lot different.
Yet still the top two’s trading figures aren’t that bad: to report bookings in line with capacity, without trashing prices, is a pretty good result in the worst consumer downturn in most people’s memory.
And it is the worst downturn in memory, certainly in travel. Official UK government figures, from the Office for National Statistics, show a 6% fall in outbound holidays from the UK year on year in July (we don’t yet have the August figures).
The year-to-date ONS figures – contrasted not with 2010 but with 2008 – show something rather worse. In the period from January to July this year, 31% fewer people took overseas holidays from the UK than in January to July 2008.
That’s right: there were 31% fewer outbound holiday trips this year, up to July, than three years ago.
So if Thomas Cook and Tui Travel have got their capacity right, managed to raise prices broadly in line with inflation and can report underlying profits, they must be doing something right.
No doubt some of what they have accomplished will involve the displacement of pain on to others. But fewer holidays at higher prices appears to be the mantra for the year ahead.