Thomas Cook shares take a dive as United Kingdom profits fall 40%

Marco Green
November 22, 2017

Travel group Thomas Cook reported lower profit margins in its British business due to tough competition in Spain, sending its shares down more than 10 percent and leaving it reliant on a recovery in Egypt and Turkey to ease the pressure. (TCKGY.PK, TCG.L) were losing around 11 percent in the morning trading in London after the British tour operator reported Wednesday weak United Kingdom margins in its fiscal 2017, despite higher group profit and revenues.

The company also pointed to a surge in costs from fraudulent illness claims and a big bill supporting 10,000 customers caught up in Hurricane Irma, which devastated parts of the Caribbean and the USA state of Florida.

Shares in the group plunged as much as 13% after the results.

"We have taken a robust approach towards illness claims including improving our handling and assessment processes, and taking legal action against fraudsters - as a result, the claim rate has declined dramatically".

"The strong performance of our Group Airline in what has been a hard year for European aviation is a particularly encouraging sign of our progress", he said in a statement.

Underlying earnings rose £24 million to £330 million.

2017 was a milestone year in the strategic development of Thomas Cook.

Chief executive Peter Fankhauser promised to arrest the slide in the UK: "While conditions are challenging in the UK, we have implemented a set of actions to improve performance".

Thomas Cook has been struggling amid a price war for Spanish holidays, which partly contributed to the collapse of smaller rival Monarch last month. Demand for holidays in both countries had fallen after terror attacks.

Thomas Cook proposed a recommended dividend of 0.6p per share.

Tour operator EBIT fell by 2% with lower margins in the United Kingdom offsetting growth in Continental Europe and the Nordics.

"As soon as Turkey, Egypt and the eastern Mediterranean destinations (have) increased demand, the Spanish hoteliers will see that they will have to adapt their prices to level it out".

Average selling prices in the United Kingdom are 6% higher year-on-year for next summer, which Thomas Cook said was mainly down to "input price inflation".

Regarding summer 2018, the company said it has seen a good start to trading, with overall holiday bookings and pricing ahead of a year ago.

Fiona Cincotta, a senior market analyst at City Index, said while Thomas Cook's group-wide revenues were ahead of market expectations, investors were focusing on the hit to profit margins.

Other reports by Click Lancashire

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