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Thomas Cook issues profits warning after UK heatwave Thomas Cook issues profits warning after UK heatwave
(about 4 hours later)
Thomas Cook’s share price has taken a battering after the travel company warned profits would take a hit because the European heatwave this summer led to a fall in demand for last-minute trips abroad. Thomas Cook’s share price has dived after the travel company warned profits would take a hit because the European heatwave this summer led to a fall in demand for last-minute trips abroad.
The firm said the “unprecedented” prolonged period of hot weather across the continent meant more people spent June and July enjoying the sunshine at home and put off booking foreign holidays.The firm said the “unprecedented” prolonged period of hot weather across the continent meant more people spent June and July enjoying the sunshine at home and put off booking foreign holidays.
A slowdown in the number of customer bookings during June and July extended into August, leading to higher-than-normal expenditure on promotional activity, which exacerbated pressure on profit margins. A slowdown in the number of customer bookings during June and July extended into August, forcing tour operators to discount more heavily in order to fill hotel beds and plane seats, putting pressure on profit margins.
As a result, Thomas Cook expects to deliver full-year underlying operating profit of about £280m, down from previous estimates of £323m. As a result, Thomas Cook expects to report a full-year underlying operating profit of about £280m, down from previous estimates of £323m.
Shares were down nearly 20% at 63p by late morning on Monday. Shares were down 23% at 60p by lunchtime on Monday.
Thomas Cook makes all of its annual profits in the summer months and also warned that the impact of the heatwave “is continuing to be felt into winter trading”. Thomas Cook, which makes all of its annual profits in the summer months, also warned that the impact of the heatwave “is continuing to be felt into winter trading”.
The chief executive, Peter Fankhauser, said: “Summer 2018 has seen a return to popularity of destinations such as Turkey and Tunisia. However, it has also been marked by a prolonged period of hot weather across Europe. The chief executive, Peter Fankhauser, said: “Our recent trading performance is clearly disappointing.
“Summer 2018 has seen a return to popularity of destinations such as Turkey and Tunisia. However, it has also been marked by a prolonged period of hot weather across Europe.
“This meant many customers spent June and July enjoying the sunshine at home and put off booking their holidays abroad, leading to even tougher competition and higher than usual levels of discounting in the ‘lates’ market of August and September.“This meant many customers spent June and July enjoying the sunshine at home and put off booking their holidays abroad, leading to even tougher competition and higher than usual levels of discounting in the ‘lates’ market of August and September.
“Our recent trading performance is clearly disappointing.” Soaring temperatures across the UK, Ireland and Europe over the summer have caused a headache for travel firms and airlines, with the low-cost airline easyJet also warning in July that late bookings might be hit.
Soaring temperatures seen across the UK, Ireland and Europe over the summer have caused a headache for travel firms and airlines, with low-cost airline easyJet also warning in July that late bookings might be impacted. The weather only added to problems caused by the fall in the value of the pound against the euro, which has put a dampener on European and American sojourns for British holidaymakers by increasing the overall cost of package deals as well as food and other local spending in euros or dollars.
Bookings for summer 2018 are 12% higher, driven by the return in popularity of holidays to Turkey, Egypt, Tunisia and Greece. However, average selling prices are 5% lower. Thomas Cook had no growth in holiday package bookings from the UK as the average selling price rose 7%, partly fuelled by cost inflation as result of the fall in value of the pound.
Northern Europe bookings are up 4% in the summer, but Thomas Cook said this has come at the expense of price, with average selling prices now up 2%, a fall of two percentage points since the last update. Competition for beds in Spain, which has gained popularity as a “safe” destination in recent years since terrorist incidents in Turkey, Tunisia and Egypt, also drove up prices there.
A similar pattern has been seen in continental Europe, with bookings up in recent weeks driven by lower pricing. Average selling prices are up 2%, a fall of 1% since the firm’s last update. “Currency is almost the elephant in the room,” Russ Mould, the investment director at broker AJ Bell, said. “It’s been an issue for two years now. Last year people thought they would go [to Europe] anyway but then they probably thought ‘that wasn’t very cheap’ and have had a rethink about their travel plans.”
However, Thomas Cook said that despite recent challenges, “we continue to make good strategic progress which positions us well to return to profitable growth.” Thomas Cook said its overall bookings, including flights, for the summer of 2018 were 12% higher, driven by a 15% jump in flight bookings as the company picked up business after the failure of competitors Monarch and Air Berlin.
The return in popularity of holidays to Turkey, Egypt, Tunisia and Greece helped offset a fall in bookings to Spain. However, average selling prices were 5% lower.
Northern Europe bookings were up 4% in the summer but Thomas Cook said this had come at the expense of price, with average selling prices only up 2%, a fall of two percentage points since the last update.
A similar pattern was seen in continental Europe, with bookings up in recent weeks, driven by lower pricing. Average selling prices were up 2%, a fall of 1% since the firm’s last update.
Thomas Cook said despite recent challenges “we continue to make good strategic progress, which positions us well to return to profitable growth”.
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