Warm European weather takes toll on Thomas Cook’s profit forecast

Thomas Cook makes all its profit in the summer when its customers in northern Europe go on holiday, primarily in southern European destinations such as Spain, Turkey and Greece. (Reuters)
Updated 31 July 2018
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Warm European weather takes toll on Thomas Cook’s profit forecast

LONDON: British travel company Thomas Cook Group said its annual profit would come in at the lower end of expectations after hot summer weather in Europe affected late holiday bookings.

Thomas Cook makes all its profit in the summer when its customers in northern Europe such as Britain, Germany and Scandinavia go on holiday, primarily in southern European destinations such as Spain, Turkey and Greece.

But northern Europe has experienced warmer than average weather over the summer so far, affecting late bookings. Thomas Cook said that full-year underlying operating profit would now be at the lower end of market expectations.

The downgraded outlook comes after the company was reported by a British newspaper to be considering splitting off its airline and selling a stake to an outside investor to reduce debt.

The company runs both a tour operator business and an airline, and said in its third quarter statement on Tuesday that a strong performance from its airline, especially in Germany, had helped to offset the impact of a warm summer.

“The sustained period of hot weather in June and July has led to a delay in customer bookings in the tour operator, restricting our ability to drive margins in the ‘lates’ market,” Thomas Cook said in a statement on Tuesday.

Thomas Cook had guided in May that it was on track to meet analysts’ expectations of a 7 percent rise in its post-operating profit to £352 million ($462.04 million) for the 12 months to Sept. 30, on a constant currency basis.


IMF: KSA reform program in right direction but needs to ‘scale up’

Updated 11 min 27 sec ago
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IMF: KSA reform program in right direction but needs to ‘scale up’

  • IMF expects the Saudi economy to grow by 2.2 percent this year
  • Privatizations could have beneficial impact says analyst

DUBAI: Saudi Arabia’s reform process is heading in the right direction, but the Kingdom needs to “scale up” in certain areas of the economy, according to the International Monetary Fund (IMF).
The IMF’s director for the Middle East and Central Asia, Jihad Azour, told journalists in Dubai that prospects for foreign direct investment — which the Kingdom has sought to attract in its strategy to get away from oil dependency — would benefit from more government measures to increase public sector involvement.
“The fiscal reform process is heading in the right direction, but improving employment prospects are subject to continued structural reform and the Vision 2030 program. Allowing women to drive is expected to have a positive effect on growth, but more progress is still needed and it needs to scale up, especially in education for local skills, and allowing small-to-medium enterprises to grow with access to finance,” he said.
On foreign direct investment (FDI), he said the oil industry had its own dynamic, but that other sectors were still dependent on public investment, and FDI would come if there were more opportunity in the private sector and in SMEs.
Azour made the comments in Dubai in the course of his twice-yearly regional economic outlook, which forecast economic growth across most of the region — with the exception of Iran — but warned that Middle East economics faced “gathering storm clouds” from global macro-economic issues and from oil price volatility.
“Global growth remains strong, but there are troubling signs ahead. Growth has become uneven; trade barriers and tensions are increasing; financial market conditions have tightened; and investor sentiment is volatile and uncertain. This changing global economic environment is bringing new challenges for the countries in the region,” he said.
In the oil-exporting Arabian Gulf countries, overall growth would resume this year following a contraction in 2017, with the IMF forecasting 2.4 percent for 2018 and 3 percent next year. “Higher oil prices and a slower pace of fiscal consolidation are boosting near-term growth prospects,” Azour said.
Saudi Arabia growth would be 2.2 percent this year and 2.4 percent next, the IMF is forecasting. For the UAE, the figures are forecast at 2.9 percent this year and 3.7 percent next, with Dubai projected at 4 percent in 2019.
“The outlook on Iran has been significantly downgraded as a result of the re-imposition of US sanctions, which are anticipated to lead to a drop in oil production and exports in the coming years,” he added. Inflation could reach 35 percent next year.
However, he said that Iranian sanctions might not be a “big negative” for neighboring countries in the Middle East because many did not rush to increase trade or financial flows after the sanctions were relaxed in 2015.
In the oil-importing economies, the IMF said that overall economies are expected to grow 4.5 percent this year and 4 percent in 2019. But there were great variations across the non-oil regions of the Middle East. Egypt was forecast to grow its economy by more than 5 percent, but many oil importers would grow at less than 3 percent.
“Rising oil prices have added to fiscal pressures in many oil-importing countries, leading to an uptick in energy subsidies,” Azour said.
The IMF executive said that there was the prospect of “reform fatigue” in many counties in the region against the backdrop of slower economic growth.
On the prospects of global trade war between the US and China, he said that the direct impact on Middle East countries would be small, but that the indirect effects — in the form of slower global economic growth and lower oil prices — could be big.
Razan Nasser, senior economist for the Middle East at HSBC, said that FDI had been in decline in Saudi Arabia for some time and, despite successes in attracting capital to the country’s markets via the upgrade to emerging markets status, it was not an easy task to attract a long-term productive capital.
Salman Jeffrey, chief business development officer at the Dubai International Financial Center, said Saudi Arabia’s privatization plans were crucial in attracting foreign investment into the Kingdom.
“You have to pin your hopes on the privatization program coming through. Once you get one or two (privatizations) in the pipeline you will see a significant effect,” he added.