‘Unprecedented’ external events hit First Choice margins

First Choice has admitted peak season sales were hit by bird flu scares, terrorist attacks in Turkey and the August UK airports security alert.

In a trading statement, the group said the security scare and Turkey terrorist attacks led to a slowdown in in sales in the high season and hit profitability in its Mainstream Holidays Sector.

This came on top of a delay in summer bookings due to the World Cup and the UK heatwave in July.

“This led to weaker selling prices in the marketplace from August, the result of which was that incrementel fuel costs of £45 million were not fully recovered from the customer in the lates market,” a group statement said.

“This combined with additional costs we incurred in dealing with an unprecedented combination of external events means that margins in Mainstream will be slightly lower than last year for the second half and therefore the year as a whole.”

Mainsteam summer sales were down by 9% in short haul with customers down 12%; 3% down in medium haul with customers down 6%. Long haul sales rose by 45% with passenger numbers up by 37%. Overall capacity was cut by 5%. 

However, First Choice said it was on track to deliver strong underlying EBIT growth for the year ending October 31 and was confident of achieving a 5% EBIT margin target in the next financial year.

The operator made a “significant reduction” in capacity across the summer in the Mainstream sector and concentrated more on differentiated product such as long haul and holiday villages.

“As a result of this strategy we have outperformed the market for both sales and volumes and achieved a 2% increase in sales revenue on 5% lower capacity for inclusive tour holidays,” the group said. 

Looking forward, the group said Mainstream capacity for summer 2007 had been reduced in line with this summer in short and medium haul, while long haul has been increased by a quarter. As a result, overall summer 2007 capacity is flat year-on-year.

“Even though it is relatively early for selling winter 2006-07 and summer 2007 holidays, it is clear that the market conditions remain challenging,” the statement said. “Our business model is constantly evolving to ensure we maintain our flexibility and efficiency whatever the market conditions and that we continue to offer our customers the leisure travel experiences they desire.”

Meanwhile, First Choice is to scale back or close some smaller businesses in Continental Europe which had sales of £36 million in the 2004-05 financial year. Certain back office functions in the UK Mainstream business are to be outsourced. The group will incur one-off costs of between £4 million to £6 million as a result.

The group continues to seek further purchases, saying: “The acquisition pipeline in specialist niche businesses continues to be strong as we build upon our significant leadership positions in attractive segments of the marketplace.”

Report by Phil Davies