Thomas Cook (LON:TCG) confirmed that full-year profit fell by 18.8% to £250 million, this wasn’t a surprise given the company announced a profit warning on Tuesday. The airline division had a solid performance as earnings grew by £35 million, but the tour operator saw fall profit by £88 million. Prices were slashed to entice potential holiday makers, but the warm weather in the UK over the summer lead to a poor performance in the last minute holidays.
Although the dividend might have been suspended, the company’s covenants are compliant, and there is headroom for future covenant tests, and this underlines the firm’s access to funds. Net debt soared from £40 million to £389 million, and that was largely because a €400 million bond was refinanced.
The travel operator has been struggling in 2018, and things are getting worse as the year goes on. The group issued two profit warnings in two months, and that has sent investors running scared. The industry as a whole has been underperforming. The extreme weather this year hurt the travel industry, as the ‘Beast from the East’ and the heatwave was a double negative for the sector. Adding to that, industrial action and the rally in oil price over the summer made matters worse.
Flybe (LON:FLYB) have put themselves up for sale recently, Ryanair (LON:RYA) reported a fall in first-half profit last month, but easyJet (LON:EZJ) bucked the trend with respectable annual results last week. It seems to be a race to the bottom when it comes to airfares, which is great for customers, but not so good for shareholders. The tough competition means that margins are tight, and there is little room for operational setbacks.
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