Problems with planes hit profits at Inspirations

Inspirations, one of Britain's leading tour operators, stunned the City yesterday with a warning that it would do no better than break even in the year to September just finished, compared with analysts' expectations of a pounds 7.7m profit. Shares in the travel group slumped 48p to 86.5p.

The company is in dispute with British Airways, from which it bought Caledonian Airways two years ago, over a service contract with the airline which Inspirations blamed for delays to its holidays during the peak summer months.

Following the sale of Caledonian, BA retained the contract to service the planes for Inspirations. Inspirations said that "on numerous occasions throughout the peak season we suffered from serviceable aircraft being delivered late from our engineering contractor".

To alleviate the delays Inspirations was forced to charter at least one extra plane. It has also been faced with the cost of compensating disgruntled passengers and has subsequently suffered lower demand and a hit to its credibility. A television documentary in early September made explicit reference to delays on Caledonian which further depressed demand.

Inspirations said it was not yet possible to quantify the net cost of the maintenance schedule problems, which would depend on how much the company could recover from BA. Analysts said any recovery would be too late for the year to September. BA and Inspirations are understood to be trying to sort out their differences amicably.

Vic Fatah, chief executive, said Caledonian was a significant customer for BA's maintenance arm and it had been able to renegotiate the agreement on much more favourable terms. "These arrangements have been designed to avoid a repeat of the problems experienced in summer 1996," he said.

News of the exceptional hit to profits marred an otherwise buoyant trading statement which confirmed that following the overcapacity of 1995, supply and demand had moved much better into balance for the holiday industry in 1996.

Inspirations also said its winter bookings were running 72 per cent up on last year and bookings for summer 1997 were also well ahead.

The warning from Inspirations is the latest blow to an industry already under the cloud of an Office of Fair Trading investigation into its vertically integrated operations. It has been argued tour operators use their ownership of chains of travel agents to distort competition. A judgement from the OFT is expected imminently.

The investigation by the OFT is its second in as many years and reflects concerns that customers are not being made aware of the links between agents and operators. Thomson and Airtours own Lunn Poly and Going Places, while Inspirations has a joint venture with AT May.