Monarch’s collapse sends Saga shares into a tailspin

Shares in the over-50s travel and holidays business Saga plunged on Wednesday after it warned profits would take a hit from the collapse of airline Monarch.

The company suffered its worst one-day drop since joining the market in early 2014, 21% to 143p, after it revealed that Monarch’s demise would cost it £2 million and that it was facing particularly tough competition in insurance broking.

Saga was forced to find alternative flights to honour packages already booked including Monarch flights when the airline went bust.

Profits growth for the full year was expected to be in the region of 5% but would be no more than 1%-2% higher than last year’s £193 million.

Profits the following year would be 5% lower, Saga said, as it unveiled a plan to begin investing £10 million a year for the next two years in growing customer accounts from its current 2.5 million.

Chief executive Lance Batchelor said: “Our plans to invest are not a short-term reaction to negative news. We have spent four years since the IPO essentially getting ready to start investing,” he said.

Investment will go into the travel and the insurance division. Saga said that despite a challenging year in travel, with Monarch’s collapse, Hurricane Irma and the weaker pound encouraging more people to stay at home, its travel business had performed well.

Saga is looking to make cost cuts of £10 million a year, after studying its operating structure. Doubts over Saga’s plans were expressed by Nicholas Hyett, equity analyst at Hargreaves Lansdown, said: “Saga’s pitch was always that its huge mailing list means all the clients it could ever want are just a maildrop away.

“The extra spending suggests it might not be as clean cut as that,” he said.