Thomas Cook faces an uphill task to restore the confidence of travellers and investors before the crucial new year booking season, after revealing a 30-per-cent drop in U.K. sales following news of its financial troubles.
The world’s oldest travel firm secured a rescue package from its lenders late Friday after days of frantic talks, but analysts say the damage is already severe.
“Trading was challenging enough, but this could have been further exacerbated by the events of the past week,” said analyst Nick Batram at brokerage Peel Hunt.
Shares in Europe’s second-biggest travel firm by sales rose by as much as two-thirds in early trading Monday, although the gains were partially taken back as investors digested details of the travel firm’s emergency loan.
The stock, which has lost nearly 90 per cent of its value over the past year, was up 19 per cent at 21.3 pence (34¢) as London’s stock market closed on Monday.
Including the new £200-million emergency facility, the company’s total outstanding debt is now as much as £2.1-billion.
Thomas Cook, which had issued a string of profit warnings over the past year, blamed the slump in bookings by British customers on uncertainty over the company’s future.
“We were down 30 per cent on bookings which is of course substantial but … it could have been much more had our customers not shown loyalty to us,” acting chief executive Sam Weihagen told the BBC in an interview on Saturday.
TUI Travel, owner of the rival Thomson and First Choice brands, is trying to cash in on its rival’s misfortune by placing advertisements in national newspapers that say, “Another holiday company may be experiencing turbulence, but we’re in really great shape.”
Thomas Cook said on Friday its banks, led by Barclays, HSBC, RBS and UniCredit, had agreed to provide a £200-million facility available until April 2013, replacing a £100-million short-term facility announced in October.
Thomas Cook will pay about 6 per cent interest on the loan, rising 0.5 per cent every quarter – which analyst James Hollins at brokerage Evolution said was a “high price but not extortionate.”
Mr. Hollins said the timing of the company’s latest difficulties gives it time to restore confidence ahead of the post-Christmas booking period.
“Fortunately, all the bad press has come at a relative low point in the booking cycle and the group has the funds and time to restore partner and consumer confidence in its brand and survival,” Mr. Hollins said.
The company, which takes more than 22 million people on holiday each year, had asked its lenders to come to its rescue for the second time in five weeks last Tuesday.
It has now embarked on a strategic review as it looks to bring down its debt. It has already announced plans to raise £200-million through asset sales and analysts expect it to close hundreds of shops.
Tour operators have struggled as the emergence of low-cost airlines and the Internet has led to more holidaymakers booking online. Thomas Cook’s core customer base of families with young children has also been hard hit by tough economic conditions, while bookings were affected by unrest in popular destinations such as Egypt, Tunisia and Morocco.
Peel Hunt’s Mr. Batram said the recapitalization of the business is likely to be painful and it will need to increase equity.
“Institutions are likely to be asked to contribute to an equity refinancing and back a management team where credibility has been damaged,” he said, adding the company may need to raise another £600-million.
The company is searching for a new chief executive after industry veteran Manny Fontenla-Novoa quit in August. Thomas Cook had issued a string of profit warnings and last week delayed publication of its full-year results.