Package holiday group On The Beach has warned on profits in the latest sign of how smaller British businesses that lack the resources to manage currency risk are suffering from the weakness of the pound.
The group, which unlike multinational travel companies does not hedge its exposure to sterling but instead changes the prices of its holidays based on the value of the pound versus other major currencies, said full-year profits would be “below the board’s expectations”.
This, On The Beach said, was because the “weakening of sterling leads to a significant increase” in its holiday prices compared with those of competitors who use hedging strategies to smooth out sterling volatility.
Shares in the holiday group dropped as much as 23 per cent in early Friday trading. The stock, by far the worst performer on the FTSE All-Share index, was heading for its biggest daily percentage decline since it was floated on the London Stock Exchange four years ago.
Sterling has fallen 6.9 per cent against the euro since the start of May, with trading early Friday showing that £1 buys about €1.08.
On The Beach is currently selling a seven-night break in Lanzarote, including an EasyJet flight and half-board, for £910 per person. An all-inclusive seven-night stay in Tenerife is being sold for £1,206 per person.
The Manchester-based beach holiday retailer is one of many smaller UK businesses feeling the bite from the unpredictability of Brexit and the resulting sharp drop in sterling versus the euro and the dollar.
After several months when the UK currency was trapped in a tight range while investors tried to decipher the UK government’s next move in the divorce from the EU, the pound has been hitting lows rarely seen in the past four decades.
This has meant that smaller businesses that do not pay investment banks for hedging products but instead take a view on how the pound will trade against the dollar when they write their business plans have been wrongfooted by the recent sterling dive.
“With the increased likelihood of a no-deal Brexit, sterling has significantly devalued against the euro since the beginning of May and this accelerated at the end of July, continuing into August.,” On the Beach said in a stock exchange update.
The travel group, which bundles up flights from the likes of British Airways and Emirates with hotel deals, said that despite the “difficult market conditions” its management team remained confident that its business and strategy were viable.
“We remain confident in the resilience and flexibility of our business model,” chief executive Simon Cooper said.