Heatwave knocks Thomas Cook profits

Holiday giant Thomas Cook has warned over a hit to annual earnings as the UK and European heatwave dented demand for last-minute trips abroad.

The group said holidaymakers had been enjoying record temperatures at home in June and July, which has knocked late bookings for package holidays.

It cautioned this was set to see annual earnings now come in at the lower end of market expectations.

Thomas Cook stock
Thomas Cook stock

The soaring temperatures seen across the UK, Ireland and Europe over the past two months have caused a headache for travel firms and airlines, with low cost airline easyJet also warning earlier this month that late bookings might be impacted.

It is a particular blow for Thomas Cook, given that it makes all of its annual profits in the summer months.

The downgrade comes as Thomas Cook is reportedly looking to spin off its airline arm and sell a stake to an outside investor to slash debts.

Third-quarter figures for the travel group showed gross profit fell 3% to £443 million in the three months to June 30, while underlying earnings rose 8% to £14 million.

Bookings for summer 2018 were 11% higher overall as airline bookings offset a more sluggish market for package holidays.

Thomas Cook said group tour operator summer 2018 bookings were flat, while they rose 1% in the UK.

It said UK package holiday prices were 7% higher as it sought to offset surging hotel inflation in the Spanish market.

The Thomas Cook airline business saw a 15% rise in bookings, with demand for short-haul offsetting a decline in long-haul flight bookings.

Peter Fankhauser, chief executive of Thomas Cook, said the airline boost helped it weather a slowdown in package holiday bookings in recent weeks, "with customers across our European markets delaying decisions about their summer holidays as they enjoy the record temperatures at home".

He added: "It's clear that we remain in a competitive environment, particularly in the UK where the growth in popularity of higher-margin destinations like Turkey and Egypt has not fully offset the continued pressure on margins to Spanish holidays."

Rebecca Lane, an analyst at Jefferies, said the downgrade signalled that Thomas Cook is now expecting earnings of around £324 million for the full year.

She also warned "we remain vigilant to competitors' commentary and bookings data through August" as the heatwave is set to impact across the travel industry.