Thomas Cook defies consumer slowdown

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The Independent Online

British tourists are cutting back on weekend breaks to Ibiza, but continuing to splash out on five-star holidays and all-inclusive trips to destinations outside Europe, such as Egypt and Turkey, says Thomas Cook.

The travel company's chief executive, Manny Fontenla-Novoa, yesterday said he was not seeing customers cutting back on their main holidays during the credit crunch, as Thomas Cook posted an upbeat trading update for the period since 30 April.

The group, which acquired MyTravel in a £1.1bn deal last year, said that present trading in the summer 2008 season "continues to be strong" and that the early sales for this forthcoming winter and summer 2009 were ahead of last year.

Mr Fontenla-Novoa said that customers reduce spending on cars, home improvement, furniture, clothes and weekend breaks before they contemplate axing their big summer holiday. "You could do without a weekend break, but replacing your summer holiday is very difficult," he said. "What do you do? Stay at home? If you look at the weather, it is a different experience."

He said that UK customers were in particular cutting back on weekend breaks to destinations in mainland Spain and the Balearics, including Ibiza and Majorca. But Mr Fontenla-Novoa said that strong demand for all-inclusive holidays to other destinations, including Turkey and Egypt, was being driven by the strong euro, and the relatively stable price of the holidays.

He said: "If you are working to a budget, then it is attractive that costs for drinks, children and water sports [are included]." He added that a lot of hotels are being built in Egypt and Turkey, which are both relatively undeveloped for tourism.

In the past six weeks of trading, Thomas Cook's all-inclusive holidays and its four- and five-star holidays for this winter are both up on last year by 10 per cent and 13 per cent, respectively, to all destinations.

Thomas Cook has reduced its overall holiday capacity by 7 per cent already, partly as a result of its acquisition of MyTravel, but Mr Fontenla-Novoa said it could increase this reduction by a further 8 per cent if needed.

The travel chief said that "a lot" of the capacity it had removed were "third-line holidays", which are self-catering packages sited more than 100 metres from beaches in Spain, acquired with MyTravel.

Jonathan Jackson, an analyst at Killik Capital, said: "We are encouraged that management has taken steps to ensure some resilience to changes in demand in the future. Capacity reduction and fuel hedging, combined with the merger synergy benefits provide some reassurance that the group will be able to cope with a downturn."

Thomas Cook said that it was 92 per cent hedged against fluctuations in the price of crude oil for this financial year. "We are probably one of the best hedged companies out there," said Mr Fontenla-Novoa.

He added: "While we are encouraged by these early results, we are increasing our flexibility to give us the levers to pull in tougher market conditions, including fuel-price hedging and capacity management in all our markets."

Thomas Cook shares, which have gained more than 30 per cent in the past month, fell 8.25p to 238.5p.

Are holidays recession-proof?

Thomas Cook is not the only UK travel company to post upbeat sales. The rival German travel giant TUI, which owns First Choice Holidays and Thomson in the UK, has also delivered buoyant holiday sales. On 13 May, TUI said its current trading remains strong for this summer 2008, particularly in the UK where sales are up 8 per cent.

While the credit crunch does not appear to have yet hit British people travelling abroad for their main holiday, some UK consumers are opting for holidays on these shores, as Pontin's sales demonstrated.

The holiday parks company said in July summer bookings have risen 10 per cent as more Britons opt to holiday at home. The Pontin's chief executive Ian Smith said: "They want to make their money go further and when you consider how strong the euro is against the pound, the Pontin's pound takes a lot of beating."