Not so sunny as Thomas Cook issues fresh profit warning

THOMAS Cook yesterday warned on profits for the third time in a year after it was hit by the squeeze in consumer spending and turmoil in the Middle East and North Africa, wiping almost a third from its market value.

Shares in Europe's second biggest travel firm slumped by 28.4 per cent, or 34.85p, to close at 87.85p after the tour operator said full-year profits will be some 60 million less than previously expected.

Its profit margins in the UK are under pressure as it keeps its prices competitive to attract cautious consumers despite rising oil costs, which are making it more expensive to fly.

The unrest in North Africa and the Middle East was also having a greater impact on bookings to popular tourist destinations such as Tunisia, Egypt and Morocco than was previously estimated.

Operating profits are about 40m lower than a year ago for the first three quarters of its financial year.

The company, which has about 750 shops in the UK, now expects full-year profits of around 320m, whereas previously the City had predicted a figure in the region of 380m.

A "fundamental" review of its UK business is now under way, which will look at the mix of holidays it offers and cutting the firm's airline fleet to reduce winter losses.

Last summer, 170-year-old Thomas Cook, which also owns the Going Places brand, issued two profit warnings, blaming aircraft disruption and bargain-seeking customers waiting for last-minute deals. It said yesterday that average UK selling prices for the summer are up 4 per cent as customers opt for better value all-inclusive deals, such as packages that provide food.

Despite the "difficult trading conditions", bookings by UK customers are up by 1 per cent for the key summer season.

The number of holidays Thomas Cook has left to sell is 5 per cent lower than a year ago, but this is partly because it has reduced the number of packages to UK consumers by 1 per cent.

Sonya Ghobrial, an analyst at Barclays Capital, said the "disappointing" performance was despite an easier comparative period the previous year, which was affected by disruption from the Icelandic ash cloud. She added: "With limited potential for a major improvement in the UK economy next year, we expect little improvement in 2012."

KBC Peel Hunt analyst Nick Batram said: "It is not the (profit] downgrade but the scale of the miss that is the surprise. This raises questions about just how flexible the business model is, or whether management just called it badly wrong."A proposed merger of Thomas Cook's UK retail operations with those of the Co-operative Group, resulting in a combined estate of about 1,200 stores, is currently being examined by the Competition Commission.

Shares in rival TUI Travel yesterday fell 16.5p at 204.7p.