First Choice trims capacity amid challenging holiday climate

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The UK tour operator First Choice revealed it was cutting capacity on its short and medium-haul winter holiday ranges by 10 per cent yesterday, in anticipation of tougher market conditions ahead.

The group said the move was also part of a shift to refocus on its more lucrative and sustainable long-haul business, which has been its fastest growing area over the past year.

In its pre-close trading statement yesterday, the holiday company said conditions had been tough over the past few months, with the hot UK summer, the World Cup, terrorist alerts and bird flu scares all detracting from sales. Short and medium-haul sales fell 9 and 3 per cent respectively compared with the previous summer. However, long-haul sales increased 45 per cent.

Despite the mixed results, the group reassured investors that it was on target to deliver strong profits growth for its current financial year, which ends on 31 October.

The company conceded that conditions continued to look challenging for the coming winter and for next summer but said it believed it would still achieve its target of maintaining a 5 per cent margin in its next financial year.

As part of the refocusing, it said it also planned to scale back or close several operations in continental Europe and outsource a number of UK back-office jobs. The moves would result in a one-off cost of between £4m and £6m and the loss of about 200 jobs.

The group reiterated its intention to continue delivering growth via small acquisitions, claiming that it has a strong pipeline of potential deals.

Analysts were upbeat about yesterday's statement. In a note, Panmure Gordon analysts said they believed the company's move away from short-haul was positive. "We expect double-digit growth in coming years, driven by a combination of strong growth, both organic and through acquisitions, and margin improvement," they said.

Shares in the company rose 3 per cent to 233.75p yesterday, giving it a market value of £1.24bn.