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. Tour operators and airlines have expanded capacity in Spain and other western Mediterranean destinations in response to security concerns in markets such as Tunisia, Egypt and Turkey.
That has prompted a price war among tour operators serving Spain, while allowing hotels to increase prices that Thomas Cook must pay, squeezing margins from both sides. A weaker pound has made the situation more difficult. The company said that while bookings for next summer were at an early stage, better demand for trips to Egypt and Turkey in 2018 should help alleviate some of the margin pressure.
"My experience tells me that (the Spanish market) is balancing out," Chief Executive Peter Fankhauser told reporters on Wednesday. "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." Fankhauser said that 42 percent of holidays in summer 2017 were to Spain, but that should go down, with some capacity redirected into Egypt.
The stock was down 10.9 percent at 0950 GMT, hitting its lowest level since July, after Thomas Cook said that margins in Britain were lower after four consecutive years of profit growth. Larger rival Tui was down 2 percent, the top FTSE 100 faller.
STRONG START
Underlying earnings before interest and tax (EBIT) were 330 million pounds ($437.6 million) in 2016-17, Thomas Cook said, a little ahead of an analyst consensus of 327 million pounds.
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