Travel company Thomas Cook has reported lower-than-expected UK profit margins due to highly competitive conditions in the travel industry.
The well-known travel brand recently reported a 40% decline in its UK earnings, fuelled by a “challenging” travel market and a cut in total revenue caused by a weakened pound. For the year to September 30, Thomas Cook generated earnings of £52 million — lower than the £86 million reported during the previous 12 months.
Thomas Cook is one of several travel companies to face a decline in earnings over the past year. Others, including numerous low-cost airlines, have reported declining profits due to an increasingly intense price war and difficult currency conditions.
The weakened pound has hurt many holiday providers, the majority of which price services in pounds before purchasing accommodation, tour packages and other services in euros. Rising hotel prices have also been blamed for this year’s lower-than-expected profit margins.
In its statement, Thomas Cook reported that a high level of competition for Spanish package holidays also contributed to its smaller margins. The company has also been set back by the costs of reimbursing customers after Hurricane Irma.
Finally, the company reported that fraudulent illness claims cut into its 2017 profits, costing the company a significant amount. Executives have reported that there may be legal action against individuals that make fraudulent illness claims.
To reverse the downturn in earnings, Thomas Cook plans to focus its offerings on inexpensive, rapidly growing destinations such as Egypt and Turkey, both of which have seen an increase in demand over the past year.
Despite poor earnings from its UK division, the Thomas Cook Group has had a positive year on the whole. The company’s earnings grew by £24 million to a total of £330 million, largely due to increased customer demand.
Bookings for the winter season are currently higher than expected, with the company noting a 5% increase in total booking volume fuelled by customer interest in warm destinations such as the Canary Islands.
A persistent price war has affected UK-based holiday companies that focus on destinations like Spain, where limited availability and an increase in demand has resulted in higher-than-normal prices for hotels and holiday apartments.
Due to Spain’s image as a safe holiday destination and the weakened pound, Thomas Cook and other travel companies predict that the price of holidays to Spain will continue to rise by anywhere from five to 10 per cent over the next year.
The challenging market conditions haven’t only affected holiday tour companies. Earlier this year, UK-based Monarch Airlines ceased trading due to financial difficulties, leaving 10,000 holidaymakers stranded overseas.
Even the industry’s most robust companies have reported lower-than-anticipated profits, with budget airline easyJet stating a 17% annual decrease in profits. Chief executive Carolyn McCall described the year as a “difficult” one for the entire travel industry.
Still, with demand increasing and bookings on the rise, 2018 could potentially be a year of new opportunities and financial turnaround for many of Britain’s airlines and travel service providers.