UPDATE 2-Thomas Cook says cost-savings to offset Egypt, lower UK prices

Thu May 15, 2014 5:26am EDT

* Says UK pricing 3 pct lower this year than last

* Second stage of turnaround plan targets profit improvement

* H1 seasonal loss narrows by 6 pct, meets expectations

* Shares fall 5 pct (Adds CEO comments, analyst comment, share price)

By Sarah Young

LONDON, May 15 (Reuters) - British holiday operator Thomas Cook said it was confident of hitting 2015 targets as cost-savings ticked ahead and helped it weather a slump in bookings for Egypt and lower holiday prices in Britain.

The company, Europe's second biggest tour operator by revenues, also on Thursday announced a cost-saving plan for the three years after 2015, which some analysts said did not go as far as they were anticipating.

Thomas Cook shares lost 5 percent of their value in morning trading. The stock has gained 21 percent over the last six months. Analysts attributed the fall to disappointment with the 2015-18 cost saving plan and average holiday prices in Britain which for this summer were 3 percent lower than last year.

The world's oldest travel firm launched a turnaround plan in 2012 after two years when the euro zone debt crisis and political turmoil in Egypt and Tunisia left it struggling with its debt load.

Announcing the second stage of the turnaround, which it calls "wave 2" and will cover the three years from 2015, Thomas Cook said it was targeting a profit improvement of over 400 million pounds, having identified 150 million pounds of savings already.

"The announced wave 2 figure of 400 million pounds is a touch below previous guidance of more than 440 million pounds, if we are being picky, while UK summer trading gives us cause for concern," Investec analyst James Hollins said.

Another analyst who declined to be named said he had expected more than 150 million pounds of savings to have been identified for "wave 2".

The first part of the turnaround plan, which covers the period to 2015, was ahead of target, Thomas Cook said, adding that it had identified 20 million pounds of extra savings, taking its 2015 profit improvement target to 460 million pounds.

For its current financial year to the end of September, Thomas Cook said cost savings would help offset the weaker prices in Britain which it blamed partly on customers opting for holidays of shorter duration.

The FTSE 250 group reported an underlying operating loss of 187 million pounds, a 6 percent improvement on the same period last year, and broadly in line with analyst forecasts, for the six months to March 31.

Like most European tour operators and airlines, Thomas Cook generally reports a loss in the traditionally weaker first part of the year and makes the bulk of its profits in the summer months when its customers tend to take more holidays.

Instability in Egypt continues to bite, it said, with fewer customers booking holidays there, resulting in a 14-million-pound hit to its bottom line over the 122 months to March 31, and lowering first-half sales by 0.7 percent.

The company said Egypt's difficulties made hitting its targets more challenging but it remained confident of achieving a sales growth target of over 3.5 percent for the full-year 2015, as it introduces more of its new, more expensive concept hotels, and bookings for this winter were up 11 percent.

Thomas Cook also sells holidays in Russia - its business there made a loss of 10.5 million euros in the year to Sept. 2013 - where it said it was watching events carefully given the crisis with neighbouring Ukraine.

"We've seen a little bit of a curtailment of booking activity but nothing too dramatic," chief executive Harriet Green told reporters on a conference call.

Thomas Cook's bigger rival TUI Travel on Tuesday posted an improvement in its first-half loss, beating analyst expectations and said it was on track to increase underlying operating profit by 7-10 percent this financial year. (Editing by Mark Heinrich)

Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.