Thomas Cook's heat stroke burns the shares again

Those investors who bailed in the wake of Thomas Cook’s first profit warning barely two months ago look smart this morning.

The heatstroke caused partly by the uncomfortably hot summer in northern Europe, and the impact it had on bookings, is far from the only problem from which the tour operator has been suffering as a second ugly profit warning made clear.

The alert was rushed out just two days before its full year results were due. That’s the sort of thing that can have even the most loyal (or stubborn) of investors jumping on a plane bound for somewhere else.

Bad enough was the fact that earnings will come in £30 under the firm’s prediction of £280m, made after the first profit warning.

But what really spooked the market was the alarming spike in debt - to £389m.

That’s more than £100m worse than the City had feared. The explanation proferred was “delayed bookings and higher non cash items”.

When debt spikes like that it reads trouble with a capital T whatever the explanation. Set against it, the suspension of the dividend looked like a prudent step to take.

There was some comfort to be gleaned from the company’s statement about its banking covenants. Thomas Cook has sufficient headroom over the relevant tests to handle further turbulence. So there's no need for emergency meetings or pleas for forbearance as of yet.

On the other hand, it speaks to the scale of the company’s problems that this was made note of.

What’s the prescription? There was the usual fluff about ‘putting the customer at the heart of everything we do’.

The lengthy statement (for a profit warning) also sought to showcase lots of initiatives. Look at Thomas Cook China. Look at Thomas Cook Money. Look at ‘Complementary Holidays’.

But bookings are down, margins are tight and set against that optimism was terribly hard to find.

One key takeaway was Thomas Cook's keenness to talk up its own brand hotels, and an accelerated roll out of them.

That’s understandable. They offer higher margins, and importantly, control. But the holiday market remains brutally competitive, and profit squeezing promotional activity continues. Thomas Cook is going to have to work hard to persuade consumers to pay up so it can reap those margins.

Against such a tough backdrop, the last thing it really needs is the bad odour surrounding the company’s finances feeding through to customers’ decisions about where to go and which company to go with.

All that and Brexit. No wonder the shares are testing lows that they haven’t experienced since they reached a nadir in 2012.