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Thomas Cook suggests possible sale of airline business as it posts wider quarterly loss

Thomas Cook said it recognises that it needs "greater financial flexibility and increased resources" to invest in its own-brand hotel portfolio and digital offering

Thomas Cook
Thomas Cook has launched a strategic review of the airline division

Thomas Cook Group PLC (LON:TCG) indicated it could put its airline business up for sale as it posted a wider first-quarter loss, blaming the knock-on effect from last year’s prolonged summer heatwave.

The tour operator made an underlying operating loss of £60mln in the three months ended December 31, compared to a loss of £42mln the same period a year ago.

READ: Thomas Cook confirms 'disappointing' full-year earnings and turnaround plan

Revenue was broadly unchanged in the quarter, rising by 1% on a like-for-like basis to £1.65bn.

A good run of warm weather over the summer period meant fewer people booked overseas holidays while high hotel prices in the Canary Islands hit demand in this area. Demand for Spanish holidays was also weaker amid tough competition.

Thomas Cook said strong bookings for Turkey and North African holidays offset the poor performance for Spanish trips in the period.

Gross margins declined as the company cut prices to draw in UK customers at the end of the summer season and to address weak demand for winter holidays in the Nordics.

The group also took a £4mln hit related to foreign exchange movements.

Bookings for holidays this winter are up 8%, supported by an 8% rise in the airline business after adding more aircraft last spring.

The company said it continued to see strong demand for trips to Turkey, Egypt and Tunisia as customers seek alternatives to high hotel prices in the Canary Islands but average selling prices were 10% lower due to a higher mix of short and medium-haul airline volumes.

Bookings in the tour operator business for the winter period were down 2%, led by declines from the Nordics and Continental Europe, while prices were 3% lower.

Summer bookings fall 

For summer this year, the firm has sold 30% of its programme, which is slightly ahead of last year. However, tour operator bookings dropped 12% as the company reduced capacity across its markets to manage risks throughout the year. Capacity reductions led to a 4% rise in prices.

Airline bookings for summer are also below last year after cutting the number of flights to short and medium-haul destinations by taking in less wet-lease capacity. Average selling prices in the airline division rose 6%.

Looking ahead, the company said it was taking steps to address the challenges it faced last summer by cutting costs, reducing its airline capacity for 2019 and focusing on high quality, higher-margin hotels and destinations.

Airline business up for sale?

Thomas Cook said it has launched a strategic review of the airline business, suggesting this could lead to possible disposal. 

"We recognise that we need greater financial flexibility and increased resources to accelerate the execution of our strategy of differentiation: to invest in strengthening our own-brand hotel portfolio; further digitising our sales channels; and driving greater efficiencies across the business,” said chief executive Peter Fankhauser.

“As a result, we are today announcing a strategic review of our Group Airline. We are at an early stage in this review process which will consider all options to enhance value to shareholders and intensify our strategic focus. We will provide an update on this process in due course."

Thomas Cook left its guidance for the year unchanged given the early stage of the year and limited visibility due to market uncertainty, particularly in the UK.

Shares jumped 12.50% to 34.96p in morning trading.

Russ Mould, investment director at AJ Bell, said the review of the airline business is an acknowledgement that the company needs to take radical action to steady its performance and repair a fragile looking balance sheet.

"Investors will be hoping it might avert the need for a dilutive fundraising," he said. 

READ: TUI AG shares descend as it blames warm weather and weak pound for profit warning

The news comes after rival TUI AG (LON:TUI) cut its earnings forecast, blaming the hot weather and a weaker pound putting a dent in British consumers' pockets. 

 

Quick facts: Thomas Cook Group

Price: 3.451 GBX

LSE:TCG
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Market Cap: £58.06 m
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