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Profits warning from Airtours

Travel trade: hot weather claims first victim
The long spell of hot weather claimed its first significant victim in the travel sector yesterday when Airtours, Britain's second-largest tour operator, issued a profits warning. Airtours, which has grown rapidly in the past five years, said profits for this year would fall by around 25 per cent. The shares, which stood at 440p as recently as May, finished 14p lower yesterday at 345p.

Airtours chairman David Crossland, who has seen the value of his shareholding fall by nearly pounds 30m since the hot spell began, blamed the problems on the weather, fragile consumer demand and excess capacity in the UK travel sector, which had affected margins on holidays. Mr Crossland said the difficulties were not confined to Airtours. "Most of our competitors have similar problems," he said.

First Choice, the third-largest tour operator, which has also seen its share price slump since May, said: "The hot weather is not encouraging people to take overseas holidays. The late-bookings market is very competitive, although it is too early to say what the rest of the year will look like."

Thomas Cook, the travel agency group, said its sales were similar to last year's but admitted that the warm weather had affected last-minute deals. As many UK holidaymakers decide to stay in Britain rather than travel to the traditional resorts overseas, tour operators have been left with a surplus of 500,000 holidays. Mr Crossland said late-booking prices had been cut even further as a result. A holiday that would have cost pounds 280 last year could be booked for pounds 250 this summer, he said.

The fall in demand has wrong-footed the travel industry, which had forecast that demand would increase by 5 per cent on last year to 10m packages. In fact demand has stayed flat. Mr Crossland said that Airtours was now forecasting continued weak demand and expected only 9m packages to be available next year. Prices are expected to rise by around 8 per cent next year, thanks to the rising cost of accommodation and increased brochure print costs following the rise in paper prices.

Though travel agents and tour operators are seeing profits evaporate in the heat, British resorts have been enjoying record visitor numbers. The English Tourist Board said: "Seaside resorts around the country are enjoying a boom season. People who might normally have booked an overseas holiday at the last minute have realised that there is probably better weather here. Also, they don't have to worry about foreign currency, getting jabs, or problems at airports."

Airtours had been expected to make profits of pounds 75.8m this year but analysts have now downgraded forecasts to a range of pounds 57m-67m.

The company announced yesterday that it is paying pounds 37.6m for Sunquest Locations, a Canadian tour operator which carried 270,000 passengers last year and made profits of pounds 3.6m on sales of pounds 197.8m. Airtours said the contra-seasonal nature of the Canadian business should make the balance of earnings more even throughout the year.

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