Thomas Cook snaps gloom as profits beat forecasts

Mergers have left operator well placed for downturn
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The Independent Online

Thomas Cook backed up its claims of resilience in the face of the economic slowdown as it announced profit ahead of forecasts and a confident trading outlook.

Europe's second-biggest travel company reported annual underlying pre-tax profits up 32 per cent to £309.3m and repeated its £480m operating profit target for 2009.

Manny Fontenla-Novoa, Thomas Cook's chief executive, said yesterday: "While it is still early in the booking cycle for most of our markets, current trading is in line with our expectations. Recent research and the high load factors we are experiencing give us confidence that consumers remain intent on taking their holidays."

Mr Fontenla-Novoa has said repeatedly that the travel industry would stand up well to tough economic times because the family holiday is one of the last things people are prepared to sacrifice. He said UK sales plunged 25 per cent in October at the peak of the banking crisis but that business was now flat.

Unemployment poses a threat to sales and "under normal circumstances it could be quite severe", Mr Fontenla Novoa said. But he added that recent industry mergers had taken capacity out of the market, leaving the remaining players well prepared for the downturn.

Thomas Cook merged with Britain's My Travel last year and the German giant TUI bought First Choice of the UK, allowing both companies to increase prices and preserve margins. The collapse this year of XL Holidays also took between two million and three million holidays out of the market and capacity is now about right with prices unlikely to rise much further, Mr Fontenla-Novoa said.

He added that British customers were concentrating efforts on big, longer holidays and cutting back on weekend breaks. Short-haul holidays, including flights, have been slashed to 25 per cent of the company's business from 45 per cent a year ago. "It [short-haul] has probably never been this low," Mr Fontenla-Novoa said.

For summer 2009, the company has so far sold 24 per cent of UK capacity, broadly in line with a year earlier. Prices increased 6 per cent overall, with UK prices up 4 per cent, due to factors such as fuel prices and currency movements.

Pro-forma results for the 12 months since the merger with My Travel showed a 49.8 per cent rise in operating profits to £365.9m. Thomas Cook increased its target for merger synergies to £210m from an earlier estimate of £155m, ahead of analysts' expectations.

UK and North America revenue fell as the company cut capacity in those markets, while northern Europe turnover rose, leaving total revenue flat. Operating profit margin rose to 4.2 per cent from 3.1 per cent.

Thomas Cook shares gained 7.4 per cent to 174.2p. The stock has been weighed down by concerns about the future of its biggest shareholder, the struggling German retailer Arcandor, which owns 53 per cent. Arcandor is determined to hold on to Thomas Cook and has been "incredibly supportive", Mr Fontenla-Novoa said. The full-year dividend almost doubled to 9.75p from 5p a year earlier.