The impact of the heat wave isn't as bad as some expected, but it has put a damper on what was turning out to be a good year.
Europe’s long hot summer has taken the edge off Thomas Cook Group’s profit with the tour operator expecting its bottom line for the year to fall to the lower end of current market guidance.
Full year earnings before interest and taxes will likely be around $425 million (£323 million) —not quite the disaster many in the industry suggested but clearly below what the company had hoped for.
“In terms of tour operator performance, I don’t think it will surprise any of you to hear that bookings have been impacted by the exceptionally warm weather in the last few months across our key European source markets,” CEO Peter Fankhauser said on a conference call after the release of Thomas Cook’s third-quarter results.
Hot weather in key Thomas Cook markets, such as the UK and Nordics, has put people off booking a trip abroad. After all, what’s the point in going to Spain for two weeks when the weather is as good in Oslo or London?
This has created more competition in the market for holidays booked close to departure.
“The heatwave means that people have delayed decisions about their summer holidays. Across the market there are more holidays left for tour operators to sell in the lates period. this has put pressure on price which in turn affects out ability to drive margins,” Fankhauser said.
Thomas Cook disclosed that booking for summer have been flat, after several months of gains leading up to June.
Thomas Cook has no immediate plans to sell its airline despite press speculation suggesting it had held talks about offloading a stake.
“We have consistently said we are open to playing a part in consolidation when it makes sense for our business and for our tour operator. Currently, we have no current plans to sell our airline and there’s nothing more to say because I’m not participating in any speculation,” Fankhauser said.
A similar story appeared three years ago. Reading between the lines it seems Thomas Cook would consider a sale or merger but that nobody has presented it with an attractive enough offer, yet.
Third Quarter Performance
Thomas Cook didn’t give a full picture of its finances in the third quarter, instead it published a selection of metrics.
Revenue in the three months to the end of June grew 10 percent to $3.3 billion (£2.5 billion) with underlying EBIT up 8 percent to $18 million (£14 million).
Thomas Cook reports both these figures on a like-for-like basis which means Thomas Cook adjusts for the impact of foreign exchange translation, acquisitions, disposals and business transfers.
Renewed interest in Turkey and North Africa were the key drivers to revenue growth but there are still problems in Spain where continued competition and aggressive pricing from hoteliers is still causing problems.
Underlying EBIT in the group tour operator division fell 19 percent to $34 million (£26 million).
Thomas Cook, like many European tour operators makes the bulk of its profit in the fourth quarter of its financial year when most of its customers actually go on holiday.
“Q3 results were slightly weaker than expected, but the disappointing outlook is more important,” Richard Clarke, senior analyst at Bernstein said in a note to investors.
Photo credit: Sun loungers at Thomas Cooks Sentido Carda Beach Atlantica, in Kos, Greece. The operator expects profits to be at thr lower end of its guidance. Thomas Cook Group