Thomas Cook still under pressure

Jonathan Wright

Jonathan Wright - Fidelity Personal Investing

As the nights draw in and the weather gets colder, it won’t be long till the TV ads transition from snow and Christmas trees, to palm trees and sandy beaches, to encourage us to book our fortnight in the sun. But do the latest results from Thomas Cook mean the travel industry is facing the same gloom as the UK high street?

Yesterday Thomas Cook issued its second profit warning in two months blaming the summer heatwave, a competitive marketplace and travel disruptions for its disappointing results. The company is due to publish its full audited financial results tomorrow but issued the warning in advance as its underlying earnings are now expected to be £58 million lower than last year.

The dividend was also cancelled sending shares in Thomas Cook down as much as 30% in early trading before recovering slightly. The share price is now around 70% lower than it was this time last year.

So if hot weather was the main reason why travellers abandoned their package holiday for a fortnight on the English Riviera last summer, what are the predictions for next year?

Most people buy their summer holidays in January, however based on bookings received so far this year, Thomas Cook is predicting more families will be going long-haul next year, with Orlando as the top spot. Cancun in Mexico is also proving popular with early family bookings up 22% year-on-year.

Closer to home Thomas Cook says Tunisia is on trend, citing “sunshine at a fair price” being a key factor in its return.

Currency seems to be playing a part here. As Theresa May tours the country selling her Brexit deal, all eyes will be on the implications of that deal, which is especially pertinent to the travel industry. Recent comments from President Trump that her deal is “great for Europe” and ex defence secretary Sir Michael Fallon’s remarks that it’s a “huge gamble” has not helped the pound, already weak since the referendum announcement two years ago.

It is no surprise then to see Tunisia and Florida, both outside the Euro-area, being widely tipped as hot destinations for 2019 as holidaymakers consider the impact of how a weak pound will affect their holiday spending.

But it’s not all doom and gloom for the travel industry, last week easyJet reported soaring profits, up 41% over the last 12 months, thanks to a cost and efficiency programme which saved the company £107 million.

EasyJet also confirmed that 50% of their seats are sold for the first half of next year which is in line with the prior year. What’s more with oil prices now at around $60 a barrel, down from over $85 a barrel in October, travel companies and motorists alike will be welcoming a reduction in transport costs.

As for Thomas Cook and their pursuit for profitability, its focus is now on the launch of a range of premium, own-brand hotels, with 20 new ones in the pipeline for 2019. Whether the brand is strong enough to move towards the higher end of the market remains to be seen.

However despite the Brexit uncertainty Brits still seem to be booking foreign holidays. As this year’s summer heatwave becomes more of a distant memory, Thomas Cook will be hoping it was just a one-off, not to be repeated next year.

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