February 8, 2018 / 7:38 AM / 10 months ago

Return of tourists to Turkey helps Thomas Cook offset Spanish costs

LONDON (Reuters) - Recovering demand for holidays to Turkey will help offset the impact of rising costs in Spain, British travel company Thomas Cook (TCG.L) said on Thursday, leaving it on course to meet annual profit forecasts.

The Thomas Cook logo is seen in this illustration photo January 22, 2018. REUTERS/Thomas White/Illustration

Turkey is the “standout” destination for this summer, Chief Executive Peter Fankhauser said on Thursday, as demand for holidays there returns after two years of tourists staying away over security concerns.

A pick up in demand for trips to Turkey is good news for Thomas Cook as it makes a higher profit margin on holidays there than to Spain, its biggest destination, where a price war among tour operators has coincided with hotels raising prices.

The company noted “significant” margin pressure on holidays to Spain, reiterating what it said in November, but knocking its shares around 3 percent lower.

“We see that Spain is getting again in this summer more expensive compared to a very good value for money proposition in the Eastern Mediterranean,” Fankhauser told reporters.

Referring to the recent demise of two airlines in Europe, Fankhauser called the holiday market “unpredictable”, while analysts noted risks associated with exposure to Turkey and other destinations in the Eastern Mediterranean, such as Egypt.

“The caveat being increasing exposure to potential geopolitical risk,” said Shore Capital analyst Greg Johnson.

Thomas Cook, which pioneered the package holiday concept when it was set up in 1841, is more exposed to Turkey than larger rival TUI Group (TUIT.L).

Thomas Cook said it expected results for the year through September 2018 would be in line with analysts’ expectations, which are for an operating profit of 354 million pounds ($492 million). That would be a 7 percent rise on the previous year.

For its first quarter to the end of December, when the company tends to make a loss as customers take fewer holidays in the winter season, Thomas Cook posted a 10 million pound improvement on last year’s loss, helped by its airline business.

Disruption in the British and German aviation markets had benefited Thomas Cook in recent months, it said. Last year, rival UK carrier Monarch collapsed, while Germany’s Air Berlin went into administration, and Europe’s biggest budget airline Ryanair (RYA.I) scrapped flights due to pilot rostering issues.

Thomas Cook said it would boost capacity by 10 percent in its airline business for this summer in response to growing demand from holidaymakers in Germany and Britain for flights.

($1 = 0.7189 pounds)

Reporting by Sarah Young; Editing by Kate Holton and Mark Potter

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