TT. Tui Travel

U.K.-based travel company Thomas Cook Group PLC (TCG.LN) Thursday warned that it will miss its target for profits next year due to the downturn in the industry, after posting a widened loss in the last nine months.

The company said it will still meet this fiscal year's targets despite the widened loss, but it won't make the GBP480 million in earnings before interest and tax, or EBIT, it had targeted for next year.

Chief Executive, Manny Fontenla-Novoa told reporters the company is "well placed" to meet analysts' latest consensus views for this year and next. A poll of 14 analysts by the company produced an average EBIT forecast of GBP400 million for this financial year and GBP430 million next year.

The warning hit the company's shares and at 1018 GMT, the stock was down 12 pence, or 5%, at 218 pence, the biggest decline on the FTSE 100.

The company posted a pretax loss of GBP286.4 million for the nine months to June 30, wider than the loss of GBP236.7 million a year earlier, mainly due to GBP107.3 million costs related to the 2007 merger of MyTravel and Thomas Cook, as well as costs for other acquisitions and restructuring costs. Cancellations and repatriations due to swine flu cost it GBP12.6 million.

Its net loss only widened slightly, to GBP175.6 million, from GBP174 million, as it booked a tax gain of GBP110.8 million compared with a gain of GBP62.7 million a year earlier. The company is able to claim back tax because of recent losses in the U.K. and Germany.

The company has been taking out capacity to match lower demand during the downturn and also cutting costs, so margins have risen and EBIT improved. However it doesn't see market conditions improving sufficiently to meet 2010 operating profit forecasts originally targeted.

Thomas Cook's comments echoed those from larger rival TUI Travel PLC (TT.LN), which Wednesday warned that it faces a tough winter because consumers are foregoing second holidays during the economic downturn.

Fontenla-Novoa said rising unemployment across all markets in which it operates would mean it faces a tougher year next year. However, while he acknowledged winter holidays were more discretionary compared to main summer holidays, he was confident people would still book trips and planned capacity reductions would match lower demand.

Over the past four weeks bookings for winter holidays are down 8% on the year in the U.K. and flat across Northern Europe.

He said it would only "trim" capacity further if it was needed. It is planning to cut capacity for the upcoming winter season by 6% in the U.K. and 7% in Northern Europe, much less than the 15% cut in capacity that TUI Travel is planning for the winter.

Fontenla-Novoa said Thomas Cook had already cut more capacity than TUI Travel, having taken out 25% of available holidays over the past two years.

The collapse of the U.K.'s XL Leisure in 2008 helped both Thomas Cook and TUI Travel keep up prices as it meant a reduction of about two to three million holidays - about 7% of total market capacity.

Thomas Cook's revenue increased 10.7% to GBP5.84 billion for the nine months period as it increased the price of holidays and revenues from outside the U.K. were boosted by sterling's weakness. On a constant currency basis, revenue was up about 3.5%. It makes about a third of its revenues in the U.K.

Average selling prices in the U.K. for the summer 2009 have increased 8%. Prices in general have to rise between 3% and 4% to offset fuel and currency movements, Manny Fontenla-Novoa said.

Its results were also boosted by the timing of Easter - which fell in the third quarter this year and the second quarter last year - and because the company has also persuaded suppliers like hoteliers to lower costs to encourage travellers back. It's been particularly successful in getting suppliers to reduce cost in the euro zone, where there's weak demand due to the strength of the euro against the pound.

Thomas Cook's shares have fallen some 6% over the past 12 months, weighed down by the uncertainty surrounding the 52.8% stake owned by insolvent German retailer, Arcandor AG (ACAGF).

Royal Bank of Scotland Group PLC (RBS.LN), Commerzbank and BayernLB have said they are considering their options on a 43.9% Thomas Cook stake, which was put up as collateral against borrowings by Arcandor. The stock will most likely be sold on the markets, privately, or by a combination of both.

Fontenla-Novoa stressed Arcandor's woes doesn't affect Thomas Cook financially.

-By Kaveri Niththyananthan, Dow Jones Newswires; 4420 7842 9299; kaveri.niththyananthan@dowjones.com

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