First Choice dashes hopes for cheaper holiday deals

First Choice, Britain's fourth-biggest tour operator, yesterday dashed holidaymakers' hopes of cheap deals, insisting a cut in capacity would keep prices strong.

The company, which has slashed the number of holidays on sale to counter falling demand since 11 September, said it did not need to use price promotions to get people to travel.

Peter Long, the chief executive, said confidence in the travel industry was returning. "The majority of our customers are showing no fear of flying. Since the end of October the signs have been very encouraging," he said. Higher prices for skiing packages and for breaks to favoured hotspots, such as the Canary Isles, have boosted margins for winter 2001 to 2002 ahead of last year, the company said.

Although Mr Long expected to see a recovery for summer 2002, UK winter bookings are 3 per down on last year, while summer bookings are 11 per cent lower. This is despite a 12 per cent reduction in the number of winter holidays on sale and a 20 per cent cut in summer breaks.

"We won't be back to normal until 2003," said Mr Long. Florida has been the worst affected destination, with bookings down by about two-thirds, reflecting fears of further terrorist attacks and the anthrax outbreak.

First Choice said it would continue to develop its specialist holidays offering, such as the Sunsail water sports clubs in Turkey and Greece, adding that it was on track to increase their contribution to group profit to 50 per cent from 35 per cent by 2003. Last year, the company spent £57m on 10 tour operators.

While further acquisitions have been put on hold until the new year, Mr Long said he was keen to strengthen First Choice's position in southern Europe and that he already had his eye on some interesting opportunities.

The group posted pre-tax profits for the year ended 31 October of £55.3m compared with £68.9m previously, on sales up 21 per cent to £2.3bn. The drop in profits reflected £15.3m of goodwill and exceptional charges of £9m to cover a restructuring that lead to 1,100 redundancies – about 8 per cent of the workforce. Its shares fell 1.5p to 134p.