Thomas Cook considers airline sale as losses hit £60m​

 
Joe Curtis
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Thomas Cook Travel Agents Issues Profits Warning
The embattled travel agent announced a profit warning in September 2018 (Source: Getty)

Thomas Cook is set to consider selling its airline business as seasonal losses deepened to £60m for its first quarter, with the airline blaming customer uncertainty.


The figures

The embattled travel agent saw its operating loss increase by £14m year on year to hit £60m for the three months to the end of December as holiday bookings dropped, it revealed.

Meanwhile revenue for the period ticked up by just one per cent to £1.66bn at the holidaymaker, whose share price tanked last year following a £30m profit warning in September.

Net debt jumped to £1.59bn.

Read more: Thomas Cook secures €51m from Spanish bank to fund hotel investments


Why it's interesting

Shares rose 4.4 per cent in early trading as the group embarked on a strategic review of its airline, saying "all options" are on the table.

“We are at an early stage in this review process which will consider all options to enhance value to shareholders and intensify our strategic focus,” chief executive Peter Fankhauser said. “We will provide an update on this process in due course.”

The airline business has grown 37 per cent over the past year, according to Fidelity Personal Investing, and for the first quarter bookings were up eight per cent, despite a three per cent dip in prices.

On a call with media and analysts, Fankhauser said money from an airline sale would be spent on slashing Thomas Cook’s debt pile as the firm aims to focus on its hotel portfolio instead, as it prepares to open 20 new hotels this summer.

He also talked up the airline, saying it is a “very healthy business” and rejecting any comparisons to possible sales of struggling flyers like Germania and Flybe.

Read more: Flybe to give shareholders chance to ditch chairman over Virgin offer

“We have grown our profit and revenue last year with our airline in a very competitive and disruptive environment,” he said.

“We have been clear that Thomas Cook doesn’t need to own an airline outright to be a successful tour operator.”

“The past year has been a holiday nightmare for Thomas Cook. It plunged from profit to loss and saw its debts piled up to £389m at the time of its last update in November," said Ed Monk, associate director from Fidelity Personal Investing’s share dealing service.

“Net debt remains the huge problem, however. That coincides with the company announcing a ‘strategic review’ of the profitable and growing group airline business. The company is now considering ‘all options’, which could mean a sale.”

Both Easyjet and Ryanair are both early candidates to buy the business, according to brand consultancy Landor's chairman, Peter Knapp.

Saying the potential sale “comes as no surprise”, Knapp added: “The market today is increasingly polarised between low-cost, low-frills short haul airlines and luxury, long-haul carriers. Unfortunately for Thomas Cook, its airline fits into neither category and no one knows what it actually stands for now.”

Fankhauser said he would seek “greater financial flexibility and increased resources to accelerate the execution of our strategy of differentiation”.

That includes further digitising sales and “driving greater efficiencies” across the business.

Read more: Thomas Cook boss Peter Fankhauser spends £50,000 on company shares

What Thomas Cook said

"As expected, the knock-on effect from the prolonged summer heatwave and high prices in the Canaries have impacted customer demand for winter sun,” Fankhauser said.

“Where summer 2018 bookings started very strongly, bookings for summer 2019 reflect some consumer uncertainty, particularly in the UK, and our decision to reduce capacity which will both mitigate risk in our tour operator business and help our airline to consolidate the strong growth achieved last year.”