MyTravel tumbles as demand for holidays falls

Britain's biggest tour operator, MyTravel, shocked the City with a profits warning yesterday after it revealed that UK demand for its package holidays had collapsed since Easter.

Britain's biggest tour operator, MyTravel, shocked the City with a profits warning yesterday after it revealed that UK demand for its package holidays had collapsed since Easter.

The group, formerly known as Airtours, admitted that it would not be able to recover the £58.8m it lost in the wake of 11 September because families were refusing to book holidays in the hope of a cheap last-minute bargain. Its shares, which had recovered from 110p in September, plunged 24 per cent to 171p. Market sentiment dragged First Choice 6 per cent lower to 110.5p.

MyTravel said it had 1 million holidays left to sell for summer 2002. This is despite slashing capacity by about 10 per cent, in line with the rest of the sector.

Tim Byrne, the chief executive, said the problem stemmed from last October – the start of the group's financial year and normally a key advance-booking period for the following summer. The group sold 250,000 fewer package holidays during its first quarter to end-December, costing it £30m in October alone.

"Most customers [especially families] understand that waiting for a bargain is a risky business ... [but] that psychology went out of the window in quarter one. The temptation has become too big to wait for a bargain," Mr Byrne said.

David Crossland, the outgoing chairman, said: "The events of 11 September stressed travel and tourism worldwide more than anything I've seen in the last 40 years. The enormity of these events may be fading but we can't ignore the significant financial effect on the quarter one results."

Mr Crossland, who is due to retire this November, said that this year's trend towards later booking was happening across the industry. "This is not purely a MyTravel issue. These changed booking patterns have been affecting nearly every receiving country and every one of our competitors."

Underlining that fall in demand, it emerged yesterday that Thomas Cook, the German-owned tour operator, was planning to cut more holidays from its summer 2002 capacity in addition to the 10 per cent it slashed in April.

Analysts said that MyTravel, which as recently as February said that its operating profits would be flat on 2001, had failed to manage market expectations. "They are perennially optimistic," one analyst said, adding that the market had been wrong to re-rate the tour operators so quickly after 11 September.

MyTravel ruled out the prospect of a price war between the tour operators, predicting that demand in the so-called "lates market" would outstrip supply. "Pricing will be very firm but not firm enough to make up the £60m lost in quarter one," Mr Crossland said.

The group, which expects to finish re-branding its 720 high street shops as MyTravel by December, also announced plans to launch a low-cost airline in October. The airline will capitalise on the group's strengths in running the lowest-cost UK charter airline and will focus on leisure routes. Initially, just two of MyTravel's 56 aircraft will serve the new routes to destinations such as Majorca, the Canary Islands and Spain. The airline is expected break into profits in its first year of operations.

The group reported pre-tax losses of £157m for the six months to 31 March down from a loss of £97.6m the previous year. Turnover was fell from £2.1bn to £1.7bn.