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Thomas Cook Reports Full-Year Loss on Volcano Costs

Thomas Cook Group Plc, Europe’s second-biggest tour operator, posted a full-year loss because of costs for assisting passengers stranded when a volcanic eruption led to the shutdown of European airspace.

The net loss for the 12 months through Sept. 30 was 2.6 million pounds ($4 million) compared with restated net income of 7 million pounds a year earlier, the London-based company said today. Thomas Cook shares fell as much as 5.6 percent, the biggest intraday drop since Sept. 28.

The tour company incurred 52.9 million pounds in additional spending, including lodging and rearranging flights for stranded travelers, and lost 29.2 million pounds in earnings after European authorities halted flights in reaction to an ash cloud from an Icelandic volcano eruption. U.K. earnings were hurt by currency shifts and “softer demand” in the middle of the year.

“There has been good underlying progress at Thomas Cook, but much of this has been overshadowed by the tough consumer backdrop,” Nick Batram, a London-based analyst at KBC Peel Hunt, said today in a report. “While market conditions remain difficult we feel that the group is close to trough earnings.” Batram has a “buy” recommendation on the stock.

The volume of tourist arrivals worldwide will probably grow at a slower pace next year as consumers spend less because of faltering economies, Euromonitor International research shows. Higher profit in central Europe and in the German airline business didn’t offset a decline in the U.K., where Thomas Cook said it aims to achieve “significant” cost savings next year.

Lodging Costs

“The U.K. is by far our most challenging market,” Chief Executive Officer Manny Fontenla-Novoa said today on a conference call with reporters. “Because of self-help measures, we feel quite confident about this year,” as the company reduces costs at its U.K. operations and merges its business in the country with the Co-operative Group Ltd.

Thomas Cook expects to generate as much as 50 million pounds in savings annually from the merger, which will include renegotiating costs with suppliers and cutting management positions. Thomas Cook reiterated that spending on the combination will cost about 30 million pounds this fiscal year.

Thomas Cook said it has made 500 roles redundant since the end of September, of which 150 were vacant positions. None involved shop employees or customer-facing roles, while 120 were senior management, it said.

Acquisitions ‘Unlikely’

“Although the U.K. environment remains uncertain, we are encouraged by a better market environment in our major continental and Scandinavian markets,” Fontenla-Novoa said. “Winter bookings have got off to a good start and, although early in the cycle, summer bookings are developing well.”

Acquisitions this year are “unlikely” following purchases in Germany and Russia and the merger in the U.K., the executive said on the call.

Adjusted underlying profit from operations, which excludes the effects of the volcanic ash-related shutdown, fell 5.7 percent to 391.4 million pounds from a restated 415.1 million pounds, the company said. Full-year sales declined 4 percent to 8.89 billion pounds.

Thomas Cook fell as much as 5.6 percent to 175.8 pence and was down 4.5 percent as of 3:32 p.m. in London trading. The shares have fallen 23 percent this year, more than the 17 percent decline for bigger rival TUI Travel Plc, which reports fiscal 2010 results tomorrow.

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