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Thomas Cook reports quarterly revenue growth but warns over competitive market

Thomas Cook's margins continued to come under pressure in the third quarter amid a price war in Spain
Thomas Cook
Thomas Cook is shutting 50 high street stores in the UK

Thomas Cook Group PLC (LON:TCG) shares fell as it reported quarterly revenue growth but warned that the airline sector remains “highly competitive” and “unpredictable”.

The owner of German airline Condor posted a 7% increase in revenue to £1.7bn in the first quarter to December 31. The loss narrowed by £10mln to £42mln as the turnaround of Condor continued in line with expectations, in part thanks to the collapse of rivals Air Berlin and Monarch.

Condor delivered an 8% rise in passengers to 3.5mln in the period and has seen a “double-digit rise” in summer 2018 bookings.

While, Thomas Cook has seen a recovery at Condor, chief executive Peter Fankhauser said: "This remains a highly competitive - and, at times, unpredictable - market, as the disruption in the airlines sector in recent months demonstrates. “

Shares fell 3.9% to 120.30p in morning trading.

Full year guidance unchanged

However, the company left its full year guidance unchanged following a good start to the year.

Total UK bookings for the summer season are 3% than a year ago but flat for the winter season.

"From all that we see so far, customers' appetite for a summer holiday abroad shows no sign of slowing down,” said Fankauser.

“We've taken early action to meet strong demand for destinations in the Eastern Mediterranean.

“This has enabled us to shift capacity out of the Spanish islands where we have seen a continuation of the margin pressures we experienced last summer, particularly for the UK market.”

Spanish hotel price hikes hit margins 

The gross margin for the quarter stood at 21.5%, down 50 basis points from the same period last year, reflecting hotel price hikes in Spain.

The Spain holiday market has also been hit by tough competition from tourist operators, terror attacks and political unrest.

In response, Thomas Cook has turned its focus to more profitable destinations in Egypt and Turkey.

The company said it has seen “good growth” in summer bookings for Egypt and Turkey while the strong demand it has experienced in Spain over the last two to three years appears to be normalising.

Challenging market conditions 

In December, Thomas Cook said it would close 50 UK high street shops by March, blaming "challenging" market conditions. 

The closures include a mix of Thomas Cook and Co-operative Travel branded stores.

READ: Thomas Cook to close 50 high street stores after reviewing UK retail network

“Demand is rising but Thomas Cook is facing significant margin pressure in holidays to Spain that is eating into profits,” said Neil Wilson, senior market analyst at ETX Capital.

 “Nevertheless, as we noted in November after the full-year numbers, the recovery in other destinations points to a solid year ahead, particularly as these will offer better margins.”

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