Monarch’s demise sends shares in Saga into tailspin

Nearly a million people faced cancellations after the collapse of Monarch. Picture: Airbus Industries/AP
Nearly a million people faced cancellations after the collapse of Monarch. Picture: Airbus Industries/AP
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Shares in the over‑50s travel and insurance firm Saga plunged as much as 25 per cent yesterday after the business warned that the collapse of Monarch Airlines would hit its performance this year and next.

The group said Monarch’s demise in October, which saw holidays cancelled for 860,000 people, had knocked its tour operations business, leaving it with a £2 million one-off exceptional hit.

Saga said this would now slow growth in underlying pre-tax profits to between 
1 per cent and 2 per cent for the year to 31 January 2018, down from more than 5 per cent in the first half.

The dive in the share price was its worst one-day fall since Saga joined the stock market in 2014. The stock later closed down 21 per cent, or 38.8p, at 142.5p – the biggest faller in the FTSE mid-cap index.

In an unscheduled trading update, Saga said the reduced figures for earnings growth had been “impacted by more challenging trading in insurance broking during the period and the Monarch Airlines administration, which has affected our Tour Operations business”.

When Monarch failed, Saga had to switch to other carriers to honour packages already booked. It added: “For the full year, the written profit of our retail broking business is expected to be ahead year on year, with a strong performance in motor partially offset by a challenging trading environment in home and travel insurance.”

There was further gloom for the financial year to end-January 2019, as Saga said that a plan to invest an extra £10m annually into attracting new customers, alongside other “headwinds”, would see underlying profits be 5 per cent lower than the current year.

Lance Batchelor, group chief executive of Saga, insisted the group was right to maintain investment plans, despite recent “challenging” trading.He added: “With greater customer insight and a stronger business platform, now is the right time for Saga to invest in growing the customer base and the business.

“We are confident that the actions taken will ultimately see a better quality of earnings and profit growth across the business.”

The company is offsetting some of the trading woes with cost cutting, with aims to save about £10m next year. And the firm said its marketing push would help holiday passengers and retail broking policy numbers return to growth.

Saga added that it expected the current year’s dividend to be in line with City expectations, and also stuck by its target to increase travel profits by up to five times by January 2022.

After 26 years with the business, 14 of them as chairman, Andrew Goodsell notified the board in October that he will retire from the company during 2018.

In September Saga announced an interim underlying profit of £110m, up from £104m.