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Thomas Cook profits fall after political turmoil and food poisoning claims Thomas Cook profits fall after political turmoil and food poisoning claims
(about 5 hours later)
Shares in Thomas Cook have fallen sharply after its UK profits were hit by political upheaval in the Mediterranean, food poisoning fraudsters and Hurricane Irma.Shares in Thomas Cook have fallen sharply after its UK profits were hit by political upheaval in the Mediterranean, food poisoning fraudsters and Hurricane Irma.
The string of setbacks meant underlying profit in the tour operator’s UK arm fell by £34m in the year to the end of September despite a 3% increase in revenue, with the effect felt across the group as its overall profit margin declined by 23.4% to 22.1%. The string of setbacks meant underlying profit in the tour operator’s UK arm fell by £34m in the year to the end of September despite a 3% increase in revenue.
Investors seized on difficulties in its UK operations as a reason for pessimism despite an otherwise strong full-year profit statement from Thomas Cook. The biggest factor weighing on Thomas Cook was the fallout from disruption to popular tourist spots, which meant Spain’s holiday market was more crowded than ever.
The key factor affecting investors’ confidence in Thomas Cook was the fallout from political upheaval in popular tourist spots, which made the crowded Spanish holiday market more competitive than ever. Terror attacks in Egypt and Tunisia, as well as political turmoil in Turkey, resulted in tourists steering clear of the eastern Mediterranean in favour of Spain.
Profit margins, traditionally tight in the travel sector, were eroded as Spanish hotels hiked their prices in response to an influx of tourists choosing to steer clear of rival Mediterranean destinations. This allowed hotels to raise prices but fierce competition with rivals such as Tui limited Thomas Cook’s ability to pass the increase in costs through to customers. The company felt the effect on its profit margins, traditionally tight in the travel sector, which fell from 23.4% to 22.1%.
Egypt and Tunisia have suffered terror attacks while political turmoil in Turkey has also affected its sizeable tourism industry. As tourists flocked to Spain instead, competition with rivals such as Tui limited Thomas Cook’s ability to pass the increase in costs through to customers. Despite a relatively strong group-wide performance, investors seized on the difficulties in Thomas Cook’s UK operations as a reason for pessimism despite an otherwise strong full-year profit statement.
Shares in Thomas Cook fell nearly 9% in early trading, making it the biggest faller on the FTSE250, while Tui’s stock also fell, albeit by a more modest 1.2%, as investors bet that it would report similar pressures in its full-year figures due next month. Shares in Thomas Cook fell nearly 9% in early trading, making it the biggest faller on the FTSE 250, while Tui’s stock also fell, albeit by a more modest 1.2%, as investors bet that it would report similar pressures in its full-year figures due next month.
“With destinations in the eastern Mediterranean out of favour following political unrest, holiday providers are dashing headlong into Spanish resorts,” said Nicholas Hyett, equity analyst at Hargreaves Lansdown. “With destinations in the eastern Mediterranean out of favour following political unrest, holiday providers are dashing headlong into Spanish resorts,” said Nicholas Hyett, an equity analyst at Hargreaves Lansdown.
“The increased competition is a double whammy for Thomas Cook, pushing up the cost of beds while piling the pressure on pricing as well. “The increased competition is a double whammy for Thomas Cook, pushing up the cost of beds while piling the pressure on pricing as well. The group is making efforts to control costs, and holidaymakers are starting to return to destinations such as Turkey and Egypt that have struggled in recent years.
“The group is making efforts to control costs, and holidaymakers are starting to return to destinations such as Turkey and Egypt that have struggled in recent years.
“But margins in the travel agent sector have always been tight, and news that they’re being squeezed even further is far from welcome.”“But margins in the travel agent sector have always been tight, and news that they’re being squeezed even further is far from welcome.”
Thomas Cook’s UK business has also been hit by fraudulent illness claims, where holidaymakers pretend to have suffered food poisoning or other ailments and seek refunds or compensation from the company. Thomas Cook’s UK business has also been hit by fraudulent illness claims, in which holidaymakers pretend to have suffered food poisoning or other ailments and seek refunds or compensation from the tour operator.
The company said the number of claims had fallen recently, after it tightened up its compensation procedures and started taking legal action against fraudsters.The company said the number of claims had fallen recently, after it tightened up its compensation procedures and started taking legal action against fraudsters.
It also suffered increased costs as it tried to meet the needs of 10,000 customers caught up in Hurricane Irma, which devastated parts of the Caribbean earlier this year.It also suffered increased costs as it tried to meet the needs of 10,000 customers caught up in Hurricane Irma, which devastated parts of the Caribbean earlier this year.
Stripping out items such as foreign exchange movements, pre-tax profit was up 8% to £46m in the year to the end of September, on the back of revenues that were 9% higher at £9bn. The string of problems meant underlying profit in the UK division fell by £34m during the period and Thomas Cook said it would respond by trying to drive passengers towards high-margin destinations such as Turkey and Egypt, as well as cutting costs.
The chief executive, Peter Fankhauser, cited progress in the group’s continental Europe and Nordic businesses, while the Thomas Cook airline has enjoyed increased profits in a difficult year that has seen European carriers such as Air Berlin, Monarch and Alitalia go bust. At group level, pre-tax profit was up 8% to £46m in the year, stripping out currency effects, on the back of revenues that were 9% higher at £9bn.
Thomas Cook’s chief executive, Peter Fankhauser, cited progress in the group’s continental Europe and Nordic businesses, while its airline enjoyed increased profits in a difficult yearin which European carriers such as Air Berlin, Monarch and Alitalia went bust.
He also pointed to the group’s fledgling business in China and growth in financial services arm Thomas Cook Money.
The tour operator’s prospects could also be boosted by improved sales of its winter holidays, with bookings up 3% and the average selling price also 3% higher.The tour operator’s prospects could also be boosted by improved sales of its winter holidays, with bookings up 3% and the average selling price also 3% higher.
While bookings for summer next year are in the early stages, the company said it hoped pressure on the Spanish market would be eased by signs that tourists are returning to Turkey and Egypt, with trips to Greece and Cyprus also showing signs of strong demand. While bookings for next summer are in the early stages, the company said it hoped pressure on the Spanish market would be eased by signs that tourists were returning to Turkey and Egypt, with trips to Greece and Cyprus also showing signs of strong demand.
Those investors who kept some or all of their Thomas Cook shares will be rewarded with an increase in their dividend, which is rising by 20% from 0.5% to 0.6%.Those investors who kept some or all of their Thomas Cook shares will be rewarded with an increase in their dividend, which is rising by 20% from 0.5% to 0.6%.
While the stock market reacted badly to Thomas Cook’s update, its profit statement indicated continued recovery since 2011, when the company had to borrow more money from its lenders as it neared collapse.
The tour operator’s share price has risen almost fivefold since slumping to below 20p during its 2011 crisis.
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