TT. Tui Travel

Thomas Cook Group PLC (TCG.N) Thursday said its first-quarter operating loss was wider than expected as falling demand forced it to cut capacity, but said it's confident it will perform in line with its own expectations as it undertakes a program of cost cutting.

The U.K.'s big travel companies were initially resilient to the recession as they kept up prices by taking capacity out of the market to meet lower demand, but as time has gone on the lower number of holidays being sold has hit revenues and profits.

However, Thomas Cook Chief Executive Manny Fontenla-Novoa said he is confident for the year as a whole because the company will cut costs and because its summer holidays will earn more for the company.

"The full year results are underpinned by our strong summer programme weighted towards higher margin, medium haul destinations," Fontenla-Novoa said. "As a result of this and our cost reduction plans, we are confident that the Group will perform in line with Board expectations."

Thomas Cook in the three months to Dec. 31 posted an operating loss before exceptional items of GBP41.3 million, wider than the GBP27.4 million loss it posted last year, mainly as a result of capacity reduction. Revenue fell 5.6% to GBP1.70 billion from GBP1.80 billion, or down 12% on a constant capacity basis.

Due to seasonal distortions, travel companies usually make losses in the first half.

"Recent bookings for both winter and summer have recovered well following the disruption caused by poor weather conditions across Europe and particularly in the UK. We are underpinning our margins by reducing input costs across all our markets." Fontenla-Novoa said.

For the summer 2010 season, the company has decreased capacity in the U.K. by 3% as customer bookings fell 8% from Dec. 1. Average selling prices for the summer in the U.K. are up 2% year-on-year, which it said "reflect the shift in mix away from higher priced long haul to lower priced but higher margin medium haul."

Average selling prices for the winter season 2009/2010 were down 6% in Continental Europe with bookings off 2% in the past four weeks. Across Northern Europe prices, rose 11% as bookings rose 16% in recent weeks. Prices were up 6% in the U.K. despite bookings dropped 6%.

Over the past 3 months. Thomas Cook's shares have gained 11% and closed Wednesday at 232 pence.

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

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