Thomas Cook, British Airways fall after predicting 2-year slump

Thomas Cook Group Plc and British Airways Plc slid in London trading after executives at both companies said the global recession may cripple tourism demand for two years.

Thomas Cook Group Plc and British Airways Plc slid in London trading after executives at both companies said the global recession may cripple tourism demand for two years.

Thomas Cook, the 168-year-old tour operator, is reducing capacity as 2010 will be โ€œeven more difficult than this year,โ€ Peter Fankhauser, head of the companyโ€™s German business, said in an interview yesterday at Berlinโ€™s International Tourism Fair.

Gavin Halliday, BAโ€™s general manager for Europe, said at the conference today that recent bookings are โ€œvery dramatically downโ€ and forecast a โ€œvery weak trendโ€ for the next 24 months. The conferenceโ€™s organizer predicted the world travel industry may shed 10 million jobs by 2010 as the recession worsens.

โ€œFear is rising that the tourism industry will be hurt worse than expected by the crisis,โ€ said Thorsten Pfeiffer, a trader at Lang & Schwarz Wertpapierhandelsbank AG in Dusseldorf.

Shares of Peterborough, England-based Thomas Cook slid as much as 14 percent, the most since October, and BA shares lost as much as 8 percent. Before today, Thomas Cook was up 30 percent this year, resisting the bear market on optimism that pricing and profitability would hold up after some of the companyโ€™s rivals went bankrupt last year.

Thomas Cook said in a statement this afternoon that its โ€œoverallโ€ performance is in line with management forecasts released last month, and itโ€™s confident of achieving its expectations for the year amid a โ€œchallengingโ€ market.

Job-Loss Forecast

The stock market had already discounted struggles at British Airways, which had its credit rating cut to junk last week and has lost a quarter of its market value in 2009. British Airways is cutting capacity by 2 percent in the upcoming summer season, Halliday reiterated. โ€œDoing nothing is not an option.โ€

The World Travel & Tourism Council, which runs the Berlin fair, today forecast โ€œtravel and tourism economy GDPโ€ will contract by 3.9 percent in 2009 and grow less than 0.3 percent in 2010, as employment drops by 10 million to 215 million people. It called the current recession โ€œwidespread and deep.โ€ It expects employment to recover to 275 million jobs by 2019.

โ€œThe industry is not expecting a bailout,โ€ Jean-Claude Baumgarten, who heads the World Travel & Tourism Council, said in the groupโ€™s statement. โ€œIt needs a supportive framework from government to help it weather the current storm.โ€

Thomas Cook is Europeโ€™s second-biggest travel company, and British Airways is Europeโ€™s third-largest carrier. Their outlooks dragged down shares of travel-related companies including Kuoni Reisen Holding AG of Switzerland, Britainโ€™s TUI Travel Plc and carriers Deutsche Lufthansa AG and EasyJet Plc.

โ€˜Very Badโ€™ Bookings

Thomas Cookโ€™s Fankhauser said yesterday that summer bookings were โ€œvery badโ€ in January, the most important month for summer reservations. He said the tour operator wants to cut costs as bookings drop, though it may still meet its salestargets this summer if last-minute reservations come through.

โ€œThe perception among investors had been that Thomas Cook was trading resiliently through the downturn,โ€ Joseph Thomas, an analyst at Investec Plc in London, said in an interview. โ€œIโ€™m becoming increasingly nervous. This stock had been defying gravity.โ€ Thomas has a โ€œholdโ€ recommendation on the shares.

The worst global recession since World War II is curbing demand for Germanyโ€™s exports and prompting the nationโ€™s consumers to scale back spending.

The collapse of rivals including XL Leisure Group Plc last year cut industry capacity and permitted Thomas Cook to raise prices. Fankhauser said the tour operator has no plans to cut its workforce or to introduce shortened working hours for its 2,600 German employees.

Thomas Cook was down 25.25 pence, or 11 percent, to 204.5 pence at 1 p.m. in London. The company generates more than 40 percent of its sales from its continental Europe division.

British Airways fell 5.3 pence, or 3.8 percent, to 134.7 pence. Lufthansa, Germanyโ€™s largest airline, was down 16 cents, or 1.9 percent, to 8.10 euros in Frankfurt. EasyJet fell 11.5 pence, or 3.9 percent, to 284.25 pence in London.

Kuoni shares fell 22.75 francs, or 7.6 percent, to 277 francs at 1:15 p.m. in Zurich, the most since Oct. 27. TUI Travel Plc, Thomas Cookโ€™s only larger European rival, fell 11 pence, or 4.6 percent, to 229.25 pence.

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Linda Hohnholz

Editor in chief for eTurboNews based in the eTN HQ.

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