Travel giants set fair as summer holiday market holds up

Published on Sunday 7 February 2010 20:57

A CLEARER picture on consumer spending may emerge this week as firms including Thomas Cook and Diageo are among those due to update the City.

The Bank of England's much-awaited inflation report on Wednesday is likely to see rate-setters trim back growth forecasts following the UK's sluggish pull out of recession.

Inflation jumped at a record rate in December to 2.9 per cent after higher petrol prices and VAT effects, and will almost certainly have breached 3 per cent in January after the return of the tax to 17.5 per cent. This will prompt another open letter from governor Mervyn King to the Chancellor.

Travel giants Thomas Cook and Thomson Holidays owner TUI Travel will go head to head in trading updates this week with the focus on prospects for the all-important summer season.

TUI – first up tomorrow – said in December that demand for summer holidays had held up despite "exceptional fuel and currency driven cost inflation" as well as lingering economic gloom.

The firm, which owns First Choice, was also pleased with early booking patterns for the summer, as hard-pressed consumers cling to holiday plans.

Thomas Cook, which posts first-quarter results on Thursday, also said in November that summer bookings were on track and cheered the City with better than expected profits of 308 million.

The firm, which carries around six million UK holidaymakers a year, expects "continued strong growth" from destinations such as Turkey and Egypt as customers shun eurozone countries due to the weakness of the pound.

Telecoms giant BT has already boosted market hopes ahead of its third-quarter results, due on Thursday, having recently upped its full-year revenues guidance. BT said in November that costs were down by more than 900m after a jobs cull in the first six months of its financial year.

Operational problems left BT more than 100m in the red last year, but chief executive Ian Livingston said there were some encouraging signs as he improved his guidance for group revenues. Analysts are expecting third-quarter pre-tax profits to have improved to 188m against 113m a year earlier, although this is still far below the 601m seen in the same quarter two years ago.

Cillit Bang to Vanish household goods giant Reckitt Benckiser should continue to defy the recession on Wednesday with a rise in annual profits of more than 20 per cent.

Although the group has been given a tail wind by the effects of a weaker pound, Reckitt has traded strongly through the downturn and should post operating profits of 1.87 billion.

Full-year sales are expected to come in at around 7.7bn as the group's strong growth in emerging markets takes up the slack from more mature Western markets.

Engineering and aerospace giant Rolls-Royce is tipped for forecast-beating results when it reports its full-year figures on Thursday. According to analysts it is expected to post pre-tax profits of 868m for the 12 months to 31 December – down from 880m last year.

But Andrew Gollan, of Investec Securities, said that he is "increasingly convinced" that these predictions are too low and has pencilled in a surplus of 892.2m for the firm.

On Thursday, Diageo reports on half-year trading to December 31 after a tough 2009 for the global drinks market.

The Guinness-to-Smirnoff firm has been slashing jobs as part of a restructuring programme to cut 120m in costs, including controversial plans to axe 900 jobs in Scotland.

Sam Hart, analyst at Charles Stanley, is forecasting Diageo's interim pre-tax profits to remain flat at 1.4bn, with net sales also holding up – at 5.08bn versus 5.07bn a year earlier.