MyTravel admits UK business will make £10-£15m loss this year

MyTravel remains on course to make its first profit in five years but the group’s UK arm is no longer expected to return to profitability this year.

Operating loss at the UK business, which includes Airtours and Going Places, is expected to be between £10-£15 million, against £27 million in 2005.

Further cost cuts are planned as a result.

MyTravel has been hit by the UK security alert, terrorist incidents in Turkey and Jordan, which have compounded an already difficult summer, a statement said.

The company, in a trading update, said it would incur costs estimated at £50 million due to these “difficulties” and year-on-year fuel and foreign currency rises. 

“The board expects the group to report a profit before tax of £40-45 million (2005: £17.4 million loss), on an operating profit of £55-60 million. This will be the group’s first profit before tax since 2001,” a statement said.

“However, the UK business, which has experienced the most difficult trading environment, is no longer expected to return to profitability this year. Despite substantial and continuing progress in turning around the business, the effect of recent events is that the UK performance is expected to improve from a £27.4 million operating loss in 2005 to a £10-15 million loss this year.

In response to difficult market conditions in the UK, the company accelerated a cost reduction programme and now expects to “significantly exceed” a targeted reduction for the year in SG&A costs, which was £30-40 million.

“The actions we have taken are not expected to fully mitigate the price and margin erosion in the summer 2006 market,” the statement said.

Chief executive Peter McHugh said: ‘We expect to make a profit before tax of £40-45 million this year – our first since 2001 – an improvement over last year of some £57-62 million.

“We continue to make significant progress, despite difficult summer markets, particularly in the UK. While we are disappointed that we will not achieve this year’s target in the UK, we are taking the actions required to complete the turnaround.

“We believe that the UK will return to a more typical trading environment in 2007 and we continue to target a 3.5% margin in the UK in 2007.”

The group said UK winter trading has started slowly and is currently being affected by security concerns. Overall, winter charter holiday bookings are down 11% on 10% less capacity, with the average selling price up 4%.

In Northern Europe, bookings are down 6% compared with last year on 8% less capacity. However, the average selling price is up by 15%.

For North America it is too early to assess the winter, the group said.

MyTravel said it has 90% of its foreign currency requirement and 84% of its fuel requirement hedged. For the summer 2007 season, the group has 75% of its foreign currency requirement and 75% of its fuel requirement hedged. For both seasons, fuel has been hedged at prices which are “substantially higher” than those achieved for 2005/06.

Report by Phil Davies