Third profits warning from Thomas Cook

Shares in Europe’s second biggest travel firm slumped by more than 25 per cent after it said full-year profits will be some £60m less than previously expected.

Its profit margins in the UK are under pressure as it keeps its prices competitive to attract cautious consumers despite rising oil costs which are making it more expensive to fly.

The unrest in North Africa and the Middle East was also having a greater impact on bookings to popular tourist destinations such as Tunisia, Egypt and Morocco than was previously estimated.

Operating profits are about £40m lower than a year ago for the first three quarters of its financial year. The company now expects full-year profits of around £320m whereas previously the City had predicted a figure in the region of £380m.

A “fundamental” review of its UK business is now under way, which will look at the mix of holidays it offers and cutting its airline fleet to reduce winter losses.

Last summer, the group, which also owns the Going Places brand, issued two profit warnings, blaming aircraft disruption and bargain-seeking customers waiting for last minute deals.

It today said that average UK selling prices for the summer are up 4 per cent as customers opt for better value all-inclusive deals, such as packages that provide food.

Despite the “difficult trading conditions”, bookings by UK customers are up by 1 per cent for the key summer season. The number of holidays Thomas Cook has left to sell is 5 per cent lower than a year ago, but this is partly because it has reduced the number of packages to UK consumers by 1 per cent.

Sonya Ghobrial, an analyst at Barclays Capital, said the “disappointing” performance was despite an easier comparative period the previous year, which was impacted by disruption from the Icelandic ash cloud.