Thomas Cook has said it expects to suffer a £20m hit this year from a worse-than-expected impact from swine flu, and warned it would miss its 2010 operating profit target.
While the tour operator said sales for summer 2009 "continues to be robust", the update sent its shares tumbling by 11p, or 4.8 per cent, to 219p – the FTSE 100's biggest faller of the day.
For the three months to 30 June, Thomas Cook said swine flu would cost it £12.6m, including repatriation and compensation costs, as well as lost margin for having to switch customers to alternative destinations, such as Jamaica, Cuba and Egypt, given that it had sold 70 per cent of its 120,000 available holidays to Mexico.
But Manny Fontenla-Novoa, the CEO of Thomas Cook, said this would rise to £20m for the full-year, and that the scale of the pandemic was more significant than expected. "What has taken us by surprise [is that] we thought it would be a typical outbreak that would be contained. This one is different because it is continuing, and we have never had to deal with a pandemic."
On Wednesday, Thomas Cook's big rival TUI Travel said it had taken a £7m hit from swine flu in its last full-quarter.
Thomas Cook, which is 53 per cent owned by the struggling German retail group Arcandor, blamed tough global conditions for it axing its £480m operating profit target in its 2010 financial year, which it made in November 2007 after its merger with rival MyTravel. The group said: "Although up to now we have continued to regard this aspirational target as relevant, the prevailing economic environment means that it is not realistic to think that market conditions could recover sufficiently to allow this target to be achieved in 2010. However, given our flexible business model, we are well placed to achieve the market's expectations." Mr Fontenla-Novoa said the market reality is now radically different to 2007, citing economic conditions, a markedly different oil price, and the fact that the pound was far stronger against the euro and dollar.
For the nine months to 30 June, Thomas Cook's revenues jumped by 11 per cent to £5.85bn. Over the period, the group's loss from operations, before swine flu and exceptional items, was £49.5m, a 43.4 per cent improvement on the previous year.
However, Thomas Cook said in the UK it had grown average selling prices by 8 per cent for summer 2009. Its cumulative bookings for the season are down by 11 per cent, which was bang in line with its reduction in capacity. Mr Fontenla-Novoa said: "Trading for the summer 2009 season continues to be robust. In all major markets, prices are flat or ahead of last year and cumulative bookings have continued to build towards our planned capacity levels."
The tour operator said that UK customers were continuing to book their holidays late, but that its departed load factors were similar to last year's levels, averaging 96 per cent.
Similarly to TUI, Thomas Cook said the later booking trend had so far taken its toll on its winter 2009/10 sales. Its cumulative bookings for UK customers are down by 13 per cent, compared with a 6 per cent reduction in capacity. However, in northern Europe, bookings are down by a much deeper 27 per cent, against a 7 per cent reduction in capacity. For the three months to June 2009, Thomas Cook delivered a profit from operations, before exceptional items and swine flu, of £61.4m, a 39.5 per cent improvement on the previous year.
Mr Fontenla-Novoa said: "Looking beyond the current year, we are preparing for continued tough market conditions." But he said the group had positioned itself to deliver further EBIT and margin growth. Mr Fontenla-Novoa said that Arcandor's banks were exploring their options for selling the massive 53 per cent stake in Thomas Cook. This could result in a share placing or a sale to a rival, such as the German group Rewe.