Operators share spoils of collapse

Sep 30 2008 by Iain Laing, The Journal

TOUR operators TUI Travel and Thomas Cook have posted strong trading updates as they showed signs of benefiting from the collapse of rival XL.

Thomas Cook described early indications for next summer as encouraging and said the reduction in capacity as a result of fewer operators in the sector had improved the company’s outlook.

Thomson owner TUI Travel told a similar story and said it was eliminating unprofitable capacity.

Thomas Cook said it was on track to meet expectations for the financial year which ends today. It had 24% fewer holidays to sell than this time last year, while average selling prices were 15% up in the past four weeks.

Trading for winter has also been in line with expectations, with business particularly strong in the UK.

It said flexibility in capacity, its cost base and fuel hedging meant it would be able to adapt to changes in demand for next summer.

Thomas Cook chief executive Manny Fontenla-Novoa said: “Package holidays are proving resilient and the strong position we have built in medium haul is proving particularly beneficial in this economic environment.”

Both companies have benefited from their recently increased scale, after last year’s tie-up between Thomas Cook and former Airtours operator MyTravel and Luton-based TUI Travel’s combination with First Choice.

About 37% of TUI’s profits are generated from the UK, with most of the rest from continental Europe.

Investec analyst Joe Thomas described the TUI trading update as solid and said it indicated that capacity reductions for the forthcoming financial year should be enough to alleviate any consumer weakness.

He said: “All parts of the business appear to be performing satisfactorily and pricing is up by more than enough to offset the cost pressures being caused by fuel prices and foreign exchange.”