Travel group Saga cuts profit forecasts, shares plunge

[December 06, 2017]  By Noor Zainab Hussain

(Reuters) - Saga's shares slumped on Wednesday after the travel and insurance group for the over 50s said underlying pretax profit would rise by just 1-2 percent in the current year and fall 5 percent next year.

In an unscheduled trading update, Saga said more challenging trading in insurance broking and the collapse of Monarch Airlines would limit profit growth in the year to the end of January 2018.

Saga shares tumbled 24.5 percent to 136.8 pence by 1157 GMT, making them the biggest fallers in the FTSE Midcap Index <.FTMC>.

"We're projecting 1-2 percent pretax profit growth in the current financial year, the market was currently about 5 percent. So its a lower growth trajectory than we had hoped for this year," CEO Lance Batchelor told Reuters.

The failure of Monarch, the largest British airline to go bust, affected nearly 900,000 passengers in total and hit Saga's tour operations.

"Monarch was quite a meaningful provider in terms of volume. We don't have our own aircraft. Some of the really big travel companies operate their own fleet and so they were not affected by Monarch," Batchelor said.

Saga said its tour operations business had been hit by the collapse of Monarch, with a one-off cost of about 2 million pounds ($2.67 million).

Batchelor also flagged rising prices as a long term impact of Monarch's collapse as competitors rushed to fill the gap and also raised prices.

"Fleet prices as a proportion of our package are higher. And we're expecting them to remain higher next year, and that's one of the reason that we have cut back our estimate for growth of profit next year," he said.

Monarch airplanes are parked on the runway after the airline went into administration at Newquay airport, Newquay, Britain, October 26, 2017, REUTERS/Toby Melville

The drop in the pound since the Brexit vote last year has hit British consumers' spending power, but Saga said its travel business is expected to perform strongly.

"When Monarch goes bust or Hurricane Irma hits the Caribbean, we can't duck that. But, we are much less impacted by economic conditions, bonuses, Brexit than most operators appeared to be," Batchelor said.

Saga also saw volumes at its travel insurance business being hurt by the "state of the global travel market," the CEO said.

He said Saga's insurance broking business also faced intense competition in both the home and motor insurance markets.

"We obviously need to respond to that ... both to attract new customers and to retain old ones and that cost us some policies and some margin as well," Batchelor said.

Saga said an investment of 10 million pounds to take on more customers by keeping prices competitive, a fall in earned profit and lower reserve releases would push underlying pretax profit 5 percent lower in the year to January 2019.

(Reporting by Noor Zainab Hussain in Bengaluru; editing by Keith Weir and Jane Merriman)

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