Online travel company took a £25.6m hit following Thomas Cook collapse

Profits before tax fell by 26 per cent to £19.4m at online travel firm On The Beach following the collapse of Thomas Cook.

The Manchester company took a £25.6m hit in the aftermath of the collapse of the UK’s oldest holiday firm.

Group gross profit fell by one per cent while adjusted group gross profit  increased seven per cent to £99.1m.

Over the last year the firm Launched Classic Package Holidays and continued to expand long haul offering and more than doubled revenues in the year.

Key management appointments including Stefan Nordin as CTO, Adam Hansen in the newly formed role of Corporate Development Director and Oliver Garner as chief executive of Classic and CPH.

The firm opened a new digital head office in central Manchester and refurbished its operational offices in Cheadle.

In September Thomas Cook announced that it had ceased trading and entered compulsory liquidation.

There was a one-off exceptional cost associated with helping customers to organise alternative travel arrangements and lost margin on cancelled bookings.

The adjustment of £7.1m to revenue represents the lost revenue associated with providing refunds and the costs associated with organising alternative travel arrangements for customers.

On The Beach organised package holidays for affected customers which included TCG flights. Had these flights not been available at the time of booking, customers would have booked the package with an alternative flight.

The £600,000 of other exceptional operating costs relates to the incremental operational costs of managing the process and the loss of monies held by TCG agents.

Group revenue was up 35 per cent, as a result of the full year contribution of Classic Collection (where revenue is reported gross, as Principal).

Simon Cooper, chief executive of On the Beach Group, said: “In what has been a difficult general economic climate with the prolonged uncertainty regarding Brexit and the related currency impacts, I am pleased with the group’s performance with significant progress made against our strategic objectives while delivering a three per cent increase in group adjusted profit before tax, in line with market expectations.

“Following the failure of Thomas Cook Group plc (“TCG”), all teams across our business responded exceptionally to ensure that customers were either re-booked or refunded in the shortest possible time while maintaining high quality customer care.

“We have made significant progress against our strategic objectives in the year with the launch of Classic Package Holidays, the expansion of our long haul offering and the International segment delivering strong H2 revenue growth and a full year revenue after marketing break-even performance for the first time.

“The first quarter of our financial year has historically been the quietest trading period for the Group. The failure of TCG has led to a material shift in market dynamics as it had a 20% share of beach holiday passengers and approximately 20% of the seat capacity to beach holiday destinations.

“This has created a significant short-term lack of seat capacity as well as an unprecedented opportunity in the medium term to gain share.

“Search demand has therefore been strong throughout the period following the failure albeit the loss of seat capacity has led to a supply / demand imbalance with a significant increase in flight pricing, particularly for winter 19/20 departures and for travel to Eastern Mediterranean destinations.

“The board strongly believes the correct course of action to ensure that On the Beach is best-positioned to capture market share, is to focus on price competitiveness and to increase the visibility of all of the Group’s brands, with the expectation that seat supply will normalise during FY20.

“Whilst the consumer environment will continue to be challenging, we remain confident in the ability of our resilient and flexible business model to significantly increase our market share in the medium term.”

Russ Mould, investment director at Manchester investment platform AJ Bell, said: “Thomas Cook’s collapse has had a positive and negative effect on holiday seller On The Beach.

“On one hand the failure of the UK travel agent has caused On The Beach’s pre-tax profit to slump because it had to incur extra costs of helping customers who were previously booked to fly with Thomas Cook find alternative travel arrangements or providing refunds.

“On the other it has removed a player which had a 20% market share of beach holidays and airline capacity to beach holiday destinations.

“This creates a ‘once in a lifetime’ opportunity to grab some of this market share which explains why On The Beach has flagged a desire to spend more money on marketing and keep its prices competitive in order to scoop up more customers.

“That sounds a fair strategy, but On The Beach won’t be the only one with this idea. We already know that airlines have been racing to increase capacity to capitalise on this opportunity and so holiday sellers will naturally be doing the same. For example, easyJet has already flagged that it will give its package holiday business another push.

“On The Beach will have to spend money to make money, which is likely to see its costs go up in the short-term.

“The key measures of success will be the time it takes to make a return on this investment and whether it can hold on to any new customers beyond a single holiday booking.”