The Final Consumer Sacrifice

published 9 June 2006

It seems that consumers may be reining in spending on the high street, but not going on our annual holiday abroad would be the "last sacrifice", says Lex in the FT. Good news for First Choice Holidays: the group yesterday said it narrowed its first-half losses, while summer bookings for its main stream holiday sector gained 11%, says Ben Harding on Reuters.co.uk. According to the group, pre-tax loss for six months to end-April came in at £34m before exceptional items and goodwill while analysts had predicted a £37m loss.

So how has the group started its turnaround? For one, Europe's travel market is on the up for the first time since the September 11 attacks nearly four years ago. But the firm has also moved away from the traditional package holiday, to now focus on specialist trips, says Lex. It has decreased its ski holidays a very competitive market for holiday operators by a third, despite only suffering a 12% loss in turnover, and has also shifted out of the commoditised short-haul market, a move which is already proving to be rather lucrative as greater earnings are now visible.

And First Choice is not the only tour group to be unaffected by the slowing consumer demand: Europe's biggest tour operator TUI and Lufthansa-owned Thomas Cook have both said that trading remains buoyant. This they've done by focussing not on the "traditional urge" to increase capacity or market share, but instead to attempt to increase profit per passenger. Moreover, First Choice would rather spend their net cash on good acquisitions as opposed to returning it to shareholders, which looks like a "good use of investors' money".