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Annual profits soar by 32 per cent at Thomas Cook

holly williams
2/12/2008

THOMAS COOK reported a 32 per cent hike in annual profits after the travel giant cut costs and capacity to cope with the consumer downturn.

The firm - formed last year from the merger of Thomas Cook and Greater Manchester company MyTravel - said capacity in the UK travel market had been slashed by a quarter over the past two years.

It said it was benefiting from actions to offset the economic uncertainty, as well as the collapse of rivals, such as XL Leisure earlier this year.

Underlying pre-tax profits rose to £309.3m in the 12 months to September 30, up from £234.4m the previous year. Prices are also rising - up eight per cent for next summer and four per cent this winter - as it expects to have fewer holidays to sell in the lates market.

However, this has failed to put holidaymakers off taking trips abroad, according to Thomas Cook.

"Recent research and the high load factors we are currently experiencing gives us confidence that consumers remain intent on taking their holidays," said Manny Fontenla-Novoa, Thomas Cook chief executive.

But UK holidaymakers are shifting to countries outside of the euro-zone as the pound continues to weaken against the euro, added the group.

Thomas Cook has been boosted by a strong position in Turkey and Egypt, with all-inclusive luxury four or five star holidays also proving popular.

The firm said while it did not expect to make more capacity cuts after a further five per cent reduction for summer 2009 since the end of September alone, it stressed it stood ready to do so if needed. The group is also upping its 2010 cost cutting targets from the merger with MyTravel to £215m, up from £155m, with £185m expected by the end of the current financial year.

And Thomas Cook said it was using its scale to help drive down accommodation costs - representing 30 per cent of total revenue - in negotiations with suppliers. Shares rose more than six per cent.

Collins Stewart analyst Andrew Fitchie said he was cautious about the outlook for 2009, in spite of Thomas Cook's aim for further margin growth this financial year and next, with management pencilling in operating profits of £480m for the year ending September 30, 2010. He said: "We remain extremely cautious regarding the outlook and believe the risk to 2009 consensus remains high.

"However, management at Thomas Cook and rival TUI Travel are both cutting capacity aggressively, in an attempt to manage a downturn in demand; so far this strategy is working."