Travel giant Thomas Cook has hiked the price of its summer package holidays by 9% and shifted deals towards Greece after facing competition and soaring hotel costs in popular Spanish island resorts.
The group said hoteliers in Spanish islands had put up their prices by 6% to 8% after seeing surging demand to destinations such as Majorca and the Canary Islands, as sun-seekers switched from Turkey and Egypt following political turmoil and terror attacks.
Thomas Cook said it was also seeing intense competition as airlines and holiday firms have ramped up their services to the Spanish islands, but stressed it wanted to focus instead on more profitable high-end holidays "rather than chase volume growth".
It said this had left sales of package holidays for the key summer season "slightly behind last year's levels, while pricing is up 9%".
Total UK summer bookings are 1% higher, while average selling prices across holidays and flights are up by 2% as the package holiday hikes are offset by falls in seat-only flight deals after airlines slashed prices due to competition and falls in fuel costs.
Shares in Thomas Cook slumped by as much as 10% after its third quarter update as it also warned over a cautious outlook despite seeing a 40% surge in group-wide bookings to Greece.
Underlying operating losses improved by 2% on a like-for-like basis to £49 million in its typically quieter quarter to the end of December, but chief executive Peter Fankhauser said Thomas Cook remains "cautious about the rest of the year, given the uncertain political and economic outlook".
He raised concerns over Brexit, a raft of looming European elections, a stronger dollar and the threat of disruption.
But the group cheered its moves to shift demand to Greece, with Mr Fankhauser dubbing it this summer's "stand-out" destination.
The firm forecasts 2.5 million holidaymakers booking to go to Greece this summer, up 500,000 on a year earlier.
This marks a recovery after the refugee crisis in the Mediterranean and wider Greek financial woes had dented demand in recent years.
Demand for destinations such as Cyprus, Bulgaria, Portugal and Croatia is also strong, according to the group.
Mr Fankhauser said there was no sign that Britons had been put off foreign holidays by the weak pound, but added that there has been a drop in bookings to the United States largely due to the pound hitting 31-year lows against the dollar since the Brexit vote.
It reported a 1% rise in bookings overall across the group for the current winter season and 9% higher for summer 2017, with just under a third of holidays sold.
In the UK, winter bookings are 5% higher, with prices 1% lower.
Laith Khalaf, senior analyst at Hargreaves Lansdown, said: "Times are tough in the European travel industry and Thomas Cook isn't having the best of it, though the good news is things don't seem to be getting any worse."
Mr Fankhauser is also under pressure over his pay deal as the group faces shareholders for its annual general meeting later on Thursday.
A quarter of shareholders voted against Thomas Cook's pay plans last year and investor groups have voiced concerns this year over long-term incentive bonuses, with worries over a clause that would allow Mr Fankhauser to claim up to 225% of his £703,800 annual salary - a potential £1.6 million payout.
Mr Fankhauser declined to comment on his pay plans, which he said were drawn up by the group's remuneration committee.
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