• Thomas Cook overheats

Thomas Cook issued a profits warning ahead of its full-year results, blaming the hot summer, but described 2018 as an “outlier”, with 2019 starting “well”.

The company said that it would continue to pursue growth through its own brands, with at least 20 new hotel openings planned across Europe.

The company saw its share price fall by 20% after issuing the warning – its second in two months –  in which it said that it expected underlying Ebit of USD250m, GBP58m lower than prior year on a like-for-like basis, as was then reported later in the week.

The group reported an GBP88m fall in tour operator profits, hit by heavily-discounted late bookings. It also included GBP28m of “legacy and non-recurring charges” to underlying operating profit, which included a write-down of historic hotel receivables, GBP4m-worth of flight disruption costs and GBP10m in “transformation” costs.

CEO Peter Fankhauser said: “Looking ahead, we must learn the lessons from 2018 and go into the new year focused on where we can make a difference to customers in our core holiday offering. We will put particular attention on addressing the performance in our UK tour operator where the challenges of transformation in a competitive environment remain significant.”

The CEO said that the launch of its alliance with Expedia, now in five of its markets, offered customers a much wider choice of city and domestic hotels at lower cost to the business, which was helping to transform its opportunities for growth.

The company said it would continue to pursue growth through its own brands, with 20 own-brand hotels due to open between now and end of 2019 including six in Spain, four in Greece and three in Turkey. The new openings include the company’s first Casa Cook in its biggest market, Spain.

Enric Noguer, the company’s chief of hotels & resorts, said: “Expanding our own-brand hotel portfolio is central to the success of the whole business. Operating and overseeing a group of well-managed and high-quality hotels that our customers recognise and turn to for the better service and reliability they experience is an important part of our strategy as a group.

“Next year we will add three more managed hotels taking our total to 24 hotels as we accelerate our ambitions to take on more management contracts for hotels around the Mediterranean.”

Langton Capital’s Mark Brumby said that, after hopes of a takeover by Fosun International had ebbed away, the group had disappointed on trading “more than once”. However, he said that the fall in share price after the profits warning “should be taken in context”, adding that Thomas Cook was “much-changed over recent years and its finances have been overhauled. It has relied a little on exceptional charges’ that had begun to look a little less than exceptional but underlying trading had been improving. It may be that discussion with auditors, in the wake of the Patisserie Holdings scandal, were a little more forthright. Non-executive directors may also have felt a little more compelled to suggest that some non-trading items were put through the P&L in the normal way.

“There is no suggestion that Thomas Cook has done anything wrong – either now or in the past. Just that the interpretation of already-disclosed information may be treated a little differently.”

He added: “The group says that its work to fundamentally improve the quality of its income is ongoing and it is differentiating its product. Reducing capacity next year cuts the risk that the group will need to discount and it is offering markets outside of the EU for would-be travellers who have concerns as to queues and the like post Brexit. Travel remains an aspirational product, Thomas Cook is well-positioned and the shares do seem to have dropped a little further than might be warranted.”

Thomas Cook’s warning came as On the Beach reported preliminary results for the year to 30 September with revenue up 24.5% to GBP104.1m.

Simon Cooper, CEO, said: ‘I am pleased with the group’s performance. This performance was delivered despite the previously highlighted exceptionally hot weather that was prevalent over the summer in the UK and in the Nordics, which combined with the football World Cup, suppressed holiday demand. Whilst this impacted our headline revenue growth during the period, the weaker demand also drove a significant reduction in the Group’s marketing spend, ensuring growth in revenue after marketing costs remained strong. This is further testament to On the Beach’s resilient and flexible business model’.”

The group said that current performance was in line with expectations.


HA Perspective [by Katherine Doggrell]: Thomas Cook has one of the most well-known brand names in travel, certainly in this part of the world, and that helped it through its transition from high street to online. It also means that when anything sticky happens, it gets a great deal of attention as a possible trend setter for the wider travel world.

Without wishing to come across like a raging patchouli-dousing hippie, it’s likely that this climate change thingy isn’t a one off and future summers may also be warm in the UK. There is hope, bookings-wise at least, to be had, with the latest figures from Abta reporting that holiday bookings were up 12% on the same period last year despite Brexit uncertainty. There were 5% more people taking an overseas holiday this year than anytime in the last seven years, while domestic holidays declined slightly.

The issue for Thomas Cook, then, was less that people were staying at home and more that they were delaying choosing a holiday when they were having such a brilliant time burning sausages in their gardens. They still went, but by then Thomas Cook had lost its nerve and pushed the last-minute booking discount button. The appetite of the public for a last-minute bargain has made its presence felt in the hotel sector for the past few years and the canny have changed their revenue management strategies accordingly. When it’s whole holidays and not just rooms the nerve to be held is larger, hence Thomas Cook’s ‘if you build it they will come’ attitude towards its own-brand hotels. A combination of all these will be needed to deal with this warming world.

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