Brexit chaos hits Thomas Cook as losses mount to £1.5bn

https://www.theguardian.com/business/2019/may/16/thomas-cook-slumps-to-loss-as-brexit-chaos-hits-travel-plans

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The scale of the crisis affecting Thomas Cook was laid bare on Thursday as the embattled travel firm posted a £1.5bn first-half loss, issued its third profit warning in less than a year and admitted that British customers have postponed travel plans for this summer because of Brexit uncertainty.

Thomas Cook, which has debts of £1.2bn, sought to allay fears of a looming cash crunch by announcing it had secured £300m of fresh funding from lenders, although the company has to show signs of “progress” in the sale of its airline business in order to access the money.

The 178-year-old business said it was pushed deep into the red for the six months to 31 March by a £1.1bn writedown of UK package holiday unit MyTravel, which had been revalued “in light of the weak trading environment”.

Shareholders reacted to the latest torrent of bad news with another sell-off as shares in the business slumped nearly 15% to 19.6p.

Britain’s oldest package holiday firm said it had sold just 57% of its summer 2019 holidays, with tour operator bookings down 12%. It has slashed the number of holidays it offers in response to weaker demand, and is offering big discounts to entice UK customers.

Peter Fankhauser, Thomas Cook’s chief executive, said: “There is now little doubt that the Brexit process has led many UK customers to delay their holiday plans for this summer.”

He added that the Brexit date delay to 31 October had not made a difference to consumer confidence. “There are a lot of holidays left to sell and there are high levels of discounting.”

The Association of British Travel Agents (Abta) said trading had been tough for the entire travel sector in the last few months, as customers wait to see what happens with Brexit before making a travel booking.

Fankhauser said consumer demand for the firm’s holiday packages had weakened across Europe, with the prolonged heatwave last summer and high prices in the Canary Islands putting people off booking winter and summer breaks abroad.

Laith Khalaf, a senior analyst at financial advisory firm Hargreaves Lansdown, said: “Thomas Cook’s scaled back the holidays it is offering in response to lower consumer demand, but the competitive environment means that even so, it’s having to offer discounts to get customers to part with their cash.”

Thomas Cook, which has puts its airline up for sale, said it was also encountering higher fuel and hotel costs, and warned underlying profits in the second half of 2019 would be behind the same period last year.

Fankhauser said the company was assessing bids for its airline unit. Lufthansa has said it put in an offer for Thomas Cook’s German airline Condor while Virgin Atlantic is reportedly interested in the long-haul business.

Thomas Cook is being circled by potential bidders for other parts of the business and could be split up. The Chinese company Fosun, the largest Thomas Cook shareholder, is among those eyeing up its high street stores and package holiday business.

Traditional tour operators are under pressure from fierce online competition, from firms such as On the Beach and Airbnb, and a general decline in demand for package holidays.

To cut costs, Thomas Cook is closing 21 UK branches with the loss of 320 jobs, and is looking to shut more, as well as scaling back its head office in Peterborough. It has a total of 566 shops in the UK.

Mark Benbow, a fund manager at Kames Capital, said: “Thomas Cook is by no means alone in facing uncertainty. Tui is the next weakest in the market in terms of its debt.”

Thomas Cook faced similar doubts about its survival in 2012, when it was forced to sell hotels and part of its airline to raise money. The company carried out a rights issue in 2013 to shore up its balance sheet.

Fankhauser said the cornerstone of Thomas Cook’s strategy was its directly managed hotels, and was hopeful this would help it get through the tough times. Thomas Cook opened 12 more hotels in the first half, taking the total to 200 hotels, including franchised outlets, and is aiming for 250 by 2021.

He said Cook’s Club holidays were popular with millennials (18- to 35-year-olds), who now account for a quarter of bookings. There has been a boom in short city breaks to San Francisco and Las Vegas. In Europe, Spain remains the most popular destination, followed by Turkey and Greece.