TUI AG (LON:TUI) shares suffered on Monday after fellow tour operator Thomas Cook Group PLC (LON:TCG) issued a stinker of a profit warning.
Thomas Cook, which had only lowered its guidance at the end of July, said full-year earnings would be some £40-50mln below even those revised expectations.
READ: Thomas Cook plunges on profit warning
The FTSE 250 group blamed the unusually warm weather in the UK and northern Europe over summer for the warning.
It said more people opted to holiday at home as a result which, in turn, forced companies to lower their prices as they competed for the remaining passengers.
That was on top of an “already competitive market for Spanish holidays”, a key destination for travel firms.
TUI, which is due to post its own trading update on Thursday, has taken a beating today, with the market deciding that those headwinds are unlikely to be exclusive to Thomas Cook.
UBS analysts seemed to have a pretty good gauge of the situation last week, correctly speculating that Thomas Cook might have to lower its full-year forecasts once again, especially after the trouble in Egypt where two of its tourists died.
READ: The week ahead, including TUI and Thomas Cook
Despite their bearish view on Thomas Cook, the number crunchers were cautiously optimistic about TUI.
They argued that weakness in UK bookings would be offset by growth in Germany, where capacity has increased following the collapse of Air Berlin earlier this year. More capacity means more passengers to go around the remaining firms, resulting in less price-cutting.
That said, the decline in Thomas Cook’s summer bookings in the UK and northern Europe was more pronounced than expected, which traders think is likely to have affected TUI more than first thought as well.
TUI shares are down 3.1% to 1,380p, while Thomas Cook has plunged 22.4% to 60.4p.