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Thomas Cook issues profit warning as competitive Spanish holiday market hurts margins

Thomas Cook's third-quarter profits fell 3% but revenues rose 10%, driven by strong demand for holidays to Turkey and North Africa

Thomas Cook
The group continues to see aggressive pricing from rivals offering holidays to Spain

Thomas Cook Group PLC (LON:TCG) said it expects growth in annual profits to be at the lower end of market forecasts as tough competition for Spanish holidays hurt margins in the third quarter.

The tour operator reported a 3% drop in gross profit to £443mln for the third quarter, reflecting a 240 basis points decline in the gross margin to 17.9%. The company said it continued to see aggressive pricing from rivals offering holiday packages to the Spanish Islands while hotel bed cost inflation also dragged margins lower.

READ: World Cup and warm weather set to dent profits at Thomas Cook

"It's clear that we remain in a competitive environment, particularly in the UK where the growth in popularity of higher-margin destinations like Turkey and Egypt has not fully offset the continued pressure on margins to Spanish holidays,” said chief executive Peter Fankhauser.

"Based on our current view, we now expect growth in full-year underlying operating profit to be at the lower end of market expectations."

Strong demand for Turkey and North Africa holidays

Revenue, however, rose 10% to £2.5bn in the quarter, driven by strong demand for holidays to Turkey and North Africa.

All segments saw an increase in revenue due to higher pricing and customer numbers in the group’s tour operating and airline businesses.

“I'm pleased to see that the improvements we've made to our holidays are paying off through strong growth in both new and retained customers, at 12% and 5% respectively so far this year,” said chief executive Paul Fankhauser.

Summer bookings higher but average selling prices drop

Summer 2018 bookings grew 11% on last year, although the average selling price fell 3% due to a higher mix of short and medium-haul destinations.

The group sold 79% of the summer programme, a similar level to last year, supported by demand for Turkey, Egypt and Greece holidays.

For winter 2018/19, the company has sold 31% of its programme, up 2% on the previous year. 

Shares rose 2.9% to 99.75p in morning trading. 

Quick facts: Thomas Cook Group

Price: 3.451 GBX

LSE:TCG
Market: LSE
Market Cap: £56.64 m
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