Portfolio

Thomas Cook says it could sell airline business as losses widen

By Michele Maatouk

Date: Thursday 07 Feb 2019

(Sharecast News) - Travel operator Thomas Cook said on Thursday that it could put its airline up for sale, as it posted a 1% rise in first-quarter like-for-like revenue but a deterioration in margins and a widening of its losses.
In an update for the three months to the end of December 2018, the company said revenue nudged up to £1.66bn as strong demand for Turkey and North African destinations offset weaker demand for Spain.

However, gross margins were lower due to ongoing "highly competitive" market conditions in the UK at the end of the summer season and weaker demand for winter holidays in the Nordics. As a result, underlying operating losses increased by £14m on a like-for-like basis to £60m.

On a reported basis, Thomas Cook's loss from operations increased by £7m, reflecting an improvement in separately disclosed items. The seasonal loss was led by the tour operator, where a weaker performance in the UK and Northern Europe was partially offset by a good performance in Continental Europe.

Net debt at 31 December 2018 stood at 1.59bn.

The airline business, meanwhile, continued to perform well, delivering a seasonal underlying loss in line with a strong comparative period last year.

The company said that it will conduct a strategic review of the airline business to increase financial flexibility and accelerate execution of its core strategy.

Chief executive Peter Fankhauser said: "As expected, the knock-on effect from the prolonged summer heatwave and high prices in the Canaries have impacted customer demand for winter sun. Where summer 2018 bookings started very strongly, bookings for summer 2019 reflect some consumer uncertainty, particularly in the UK, and our decision to reduce capacity which will both mitigate risk in our tour operator business and help our airline to consolidate the strong growth achieved last year."

Russ Mould, investment director at AJ Bell, said the strategic review is "the most telling" element of Thomas Cook's update.

"This review, which could result in a sale of the division, is an acknowledgement that the company needs to take radical action to steady its performance and repair a fragile looking balance sheet. Investors will be hoping it might avert the need for a dilutive fundraising.

"There seems merit in the company concentrating on its portfolio of hotels instead. These typically generate better margins and it has plans to open 20 new hotels in 2019."

At 1030 GMT, the shares were up 11.4% to 34.62p.

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