UPDATED: Holiday giant Thomas Cook feels the heat as shares plunge
HOLIDAY giant Thomas Cook has warned over profits after sales were hit by the European heatwave and a fall in demand for last-minute trips abroad.
The firm said that 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 holidays abroad.
A slowdown in customer bookings during June and July extended into August, leading to higher-than-normal levels of promotional activity, which exacerbated pressure on profit margins.
As a result, Thomas Cook now expects to deliver full-year underlying operating profit of about £280 million, down from previous estimates of £323 million.
Shares plunged by nearly 25% at the market opening to 57.9p as investors digested the news.
Thomas Cook also said it would replace its chief financial officer after less than a year in the job. The change was described by Morgan Stanley analysts as a surprise.
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”.
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.
“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 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.
Bookings for summer 2018 were 12% higher, driven by the return in popularity of holidays to Turkey, Egypt, Tunisia and Greece. However, average selling prices were 5% lower. Northern Europe bookings were 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.
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.
However, Thomas Cook said that despite recent challenges, “we continue to make good strategic progress which positions us well to return to profitable growth”.
In a separate statement, Thomas Cook said its chief financial officer Bill Scott would leave the company on November 30, and be replaced on an interim basis by Sten Daugaard, a board member of Thomas Cook’s German business.
In August, Thomas Cook’s bigger rival TUI Group stuck to its forecasts but said that the heatwave would prevent it from beating them. It will publish a trading statement on Thursday.
Thomas Cook’s share price has lost about half its value since the beginning of the year, underperforming Britain’s midcap index, which is down 0.5 per cent in the period. The company is now worth about £980 million.
“The shares are undoubtedly cheap...although we lower our recommendation from ‘buy’ to ‘hold’ until we get greater clarity over trading for Summer 2019,” Shore Capital analyst Greg Johnson said.