Thomas Cook ups bookings but faces more margin pain in Spain

Thomas Cook's financial year took off at a steady rate and said but the tour operator said the market remained highly competitive, with continued profits margin pain from increased bed costs in Spain.

Revenues of £1.75bn in the three months to 31 December were up 7% on the same period a year earlier, while seasonal operating losses in the quarter were cut by £10m to £42m, helped by its German airline, Condor, taking advantage of disruption in the sector. However while higher revenues saw gross profit up 4% to £376m, gross margin was down 50 basis points to 21.5% as Spanish bed cost inflation continued to drag.

With 88% of winter tour operating bookings taken the FTSE 250 group was 1% ahead and prices ahead 4% of the prior year, with airline bookings ahead by 10% reflecting capacity growth.

For the coming summer, 34% of the holiday and flight programme has so far been sold, three percentage points above last year. In the UK, bookings were up by 3% with average selling prices ahead 6%.

In terms of destinations, Turkey, Egypt and Greece were seeing good growth across all source markets, while the very strong demand we have seen for Spain over the last two to three years appears to be normalising but Thomas Cook's offering broadened with destinations such as Montenegro, Sardinia, Greece's Olympus riviera and the Golden Sands resort town on Bulgaria's Black Sea coast.

Demand for Eastern Mediterranean destinations continued to strengthen, with Spanish bed cost inflation continuing to drag on margins, especially in the UK, as indicated in recent full year results. Management expects to be able to mitigate these pressures through the rebalancing of the programme towards higher margin destinations such as Turkey and Egypt, generating efficiencies and repositioning the business towards greater online distribution and pushing sales of holidays to own-brand hotels.

Overall, based on current trading patterns, management said trading was "encouraging" and expects full year results to be in line with current market expectations.

Thomas Cook's shares tumbled 5.5% to 118.4p by 0930 GMT on Thursday.

Analyst Greg Johnson at Shore Capital forecast 2018 profit before tax of £222m, with earnings per share of 11.4p, predicated on a £25m improvement in underlying operating profit, having delivered £10m in the first quarter.

"Offsetting this, would be drag from currency, which at £15m is worse than at the time of the prelims," he said.