Mediterranean-focused companies see profits fall post summer swelter

Thomas Cook's Sunwing Kallithea Beach hotel in Rhodes, Greece. Photo credit: Thomas Cook

TUI Group and Thomas Cook, tour operators that also have stakes in hotels, have issued updates to show how the hot summer in Europe affected performance. 

Thomas Cook

While Thomas Cook saw its share price fall 25 percent after issuing a warning, the markets were more supportive of TUI, which pointed to its diverse global and market offering as a sign of strength. 

At Thomas Cook, full-year profits were expected to be down 15 percent on the year. “Summer 2018 has seen a return to popularity of destinations such as Turkey and Tunisia,” said Peter Fankhauser, Thomas Cook’s CEO. “However, it has also been marked by a prolonged period of hot weather across Europe. This meant many customers spent June and July enjoying the sunshine at home and put off booking their holidays abroad, leading to even tougher competition and higher-than-usual levels of discounting in the ‘lates’ market of August and September. 

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Cook acknowledged the company’s recent performance is clearly disappointing. “However, despite the recent challenges, we continue to make good strategic progress, which positions us well to drive further performance improvement,” Fankhauser said. “This includes the launch of our Expedia alliance in the UK and Scandinavia, signing our first own-brand hotel in China and lining up a pipeline of 10 new Cook's Clubs in some of our key destinations for Summer 2019.” 

The company drew attention to issues in Spain, commenting that, for UK Tour Operator booking, the slowdown in customer bookings during June and July extended into August, leading to higher-than-normal levels of promotional activity, which had exacerbated pressure on margins on top of an already competitive market for Spanish holidays. 

TUI

At TUI, the company indicated demand for Spain was normalizing from “the very high levels seen in recent years” and pointed to a pipeline of hotel openings for the full-year next year, including year-round destinations such as Cape Verde, Mexico, the Caribbean islands and the Maldives.  

TUI Group CEO Friedrich Joussen said future seasons were “overall in line” with the company’s expectations. “Our strong positioning as a leading holiday product provider with our own distribution, as well as our balanced portfolio of destinations and markets, means that we are well positioned to continue to deliver against our growth strategy.” 

While TUI made much of its diverse range of destinations, Thomas Cook also pointed to “the return in popularity of holidays to Turkey, Egypt, Tunisia and Greece” and, with its hotel fund, has been using its balance sheet to add hotels and maintain supply in a growing number of destinations. This is, however, still in its nascent stage.  

What sets TUI apart is its cruise ship business, which accounted for 23 percent of profits and runs as a much higher margin business than hotels, largely in Spain, where operators continue to pile in (Club Med having last week announced plans to return to the country with a site in Marbella).  

The swings and arrows of fortune have favored a variety of destinations in the Mediterranean in recent years, with the tour operators rushing to catch up and diversity being key to success. TUI’s ability to offer floating destinations within its control is currently giving it the edge.  

Katherine Doggrell is an editor at Hotel Analyst, the U.K.-based news analysis service for hotel investors.

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