Thomas Cook: Hotel costs in Spain pushing up holiday prices

Demand for Turkey and Egypt is recovering, with package holidays to Tunisia back on sale

Holiday price rises are outstripping inflation, according to one of the UK’s largest tour operators. Revealing its full-year results, Thomas Cook reported that British holidaymakers this winter are paying four per cent more than a year ago, while average selling prices for next summer are up six per cent.

A budget off-season break that cost £500 last winter is £20 more expensive, while a family summer holiday priced at £2,500 this year will cost £150 more in 2018.

The winter rise is attributed to hoteliers in the Canaries charging more, while for next summer the reason given is “input cost inflation” - partly due to high prices for Spanish accommodation, exacerbated by the devaluation of sterling after the EU referendum.

Peter Fankhauser, Thomas Cook’s chief executive, described 2017 as a “milestone year”, and said the firm will continue to move its accommodation portfolio upmarket: “We have a further 20 own-brand hotel openings in the pipeline for the next 18 months, while at the same time we will continue to manage for quality, removing properties from the portfolio which fall short of the standards we set.”

Across Thomas Cook’s Europe-wide operations, revenue was £9bn with underlying profits of £330m, up nine and eight per cent respectively. But that covers Thomas Cook's Europe-wide operations. In the UK, after four years of profit growth, margins fell because of intense competition, especially for holidays to Spain. In a typical summer, around 30 per cent of Thomas Cook's UK passengers travel to Spain, but in 2017 it was 42 per cent.

Neil Wilson, senior market analyst for ETX Capital, said: “More expensive hotels, the weak pound and the overcapacity in the short-haul air market made Spain a tougher place to wring a profit.”

But Thomas Cook reports increased demand for Turkey and Egypt, where the firm has long been market leader, after a slump in sales due to terrorism fears.

In February Thomas Cook will become the first big UK tour operator to return to Tunisia after the nationwide ban on organised travel to the North African country was lifted by the Foreign Office.

Fiona Cincotta, a senior market analyst at cityindex.co.uk, said: “Strong growth in winter bookings bodes well for the future, with demand in regions previously marred by terrorist activity, such as Turkey and North Africa, continuing to improve.”

Sharm el Sheikh remains on the no-go list for British holidaymakers, though earlier this month it was revealed that David Cameron was on the brink of ending the ban on flying to Egypt's premier resort in June 2016. But after the EU referendum and his resignation as prime minister, the prohibition was never lifted.

For the current financial year the collapse of Monarch, a key competitor, will be positive for Thomas Cook.

The transformation of the High Street continues, with Thomas Cook saying it has "rationalised the size of our retail network in the UK by 45 per cent in the last five years”.

As more travel purchases move online, the firm has closed more than 100 travel agencies in the past year, but opened nine larger stores in high-volume retail areas. It currently has 692 stores.

Thomas Cook is the third-largest tour operator in terms of taking British holidaymakers abroad; TUI is the market leader, and Jet2 Holidays has this year taken over in second place.