Thomas Cook warns of challenging 2010

Europe's second-biggest tour operator, Thomas Cook, warned trading conditions could become even more challenging in 2010 though…

Europe's second-biggest tour operator, Thomas Cook, warned trading conditions could become even more challenging in 2010 though it was confident of meeting market expectations for the year.

Chief executive Manny Fontenla-Novoa said the group had taken into account the challenges of rising unemployment, pressures on consumer spending, the weakness of sterling and next summer's soccer World Cup as it prepared for the year to come.

"We always thought that 2009/10 was going to be very tough, perhaps even tougher than the year just finished," Mr Fontenla-Novoa told a conference call.

"We've been planning for this for the last 12 months, reviewing our cost base and negotiating hard with our suppliers and particularly our hoteliers. We've shown that we can trade our way through difficult circumstances."

Along with rival TUI Travel, Thomas Cook has reduced the number of holidays it sells by more than a quarter in the last two years, enabling it to increase its average selling prices and avoid having to offer heavy discounts at the last minute to fill empty slots.

The strategy has helped both groups continue to lift their profits and margins throughout the recession while smaller operators have struggled to stay afloat. Britain's third-biggest travel firm, XL Leisure, fell into administration last year.

"Thomas Cook is delivering but 2010 remains an unknown. A double dip is possible and, with two budgets, a (UK) general election and a World Cup due in 2010, accurately forecasting demand will be challenging," said Astaire Securities analyst Mark Brumby.

Thomas Cook, in which stricken German retailer Arcandor sold its 44 per cent stake in September, made an underlying pretax profit for the year to end-September of £308.2 million, down 0.4 per cent.

That was ahead of the consensus market forecast of £299 million, according to a survey of 19 analysts by the company.

Despite the tough trading conditions, Mr Fontenla-Novoa said that, while customers were tending to book later than usual, winter 2009/10 trading had continued to improve while bookings for summer 2010 were in line with expectations.

"Recent customer research shows that UK consumers remain intent on taking their holidays abroad next summer and we continue to see strong growth in bookings to medium-haul destinations such as Turkey and Egypt," he said.

Thomas Cook has a €1.8 billion debt facility which expires in May 2011 and Mr Fontenla-Novoa expects the group to have refinanced it by summer 2010.

"Early discussions with our banks are going extremely well and we're very confident of getting our facility away and getting it at the right price," he said.

Thomas Cook said it had now achieved £205 million of its targeted £215 million cost savings following the merger of Arcandor's travel unit and Britain's MyTravel in June 2007.

Mr Fontenla-Novoa said the group was pursuing acquisitions in Germany - one of TUI Travel's top two markets - and expected to finalise a joint venture with a Russian tour operator in the first quarter of 2010.

The group appointed ex-De La Rue and Mondi FD Paul Hollingworth as its new finance director from January 1st, 2010, replacing Juergen Bueser who stepped down due to ill health.

The consensus forecast for 2010 pretax profit currently stands at £335 million pounds.

Shares in Thomas Cook were up 1.6 per cent to 219.7 pence at 1045 GMT. TUI Travel, which reports full-year numbers tomorrow, was up 2.5 per cent to 250 pence.

Reuters