Shares rose initially before falling back 8.49% to 11.04p in morning trading as investors reacted to the company saying that tough competition for holidays to Spain hit United Kingdom margins. Its full-year gross margin edged down to 22.1 per cent from 23.4 per cent last year.
Its UK division saw margins drop after four years of growth.
"While conditions are challenging in the United Kingdom, we have implemented a set of actions to improve performance", said chief executive Peter Fankhauser.
Group revenue increased to 9.01 billion pounds from 7.81 billion pounds a year ago, reflecting strong customer demand for holiday and flight offering.
But Thomas Cook gave some hope that trading was turning around as holidaymakers return to "more profitable" destinations Egypt and Turkey.
Thomas Cook has sold 58% of its 2017/18 winter programme, in line with previous year, and total bookings are up 5% on the back of demand for the Canaries and a recovery in holidays to Egypt and Turkey.
The company said that while bookings for next summer were at an early stage, the increase in demand for trips to Egypt and Turkey in 2018 would help alleviate some of the margin pressure the company has faced on competitive destinations in Spain, though it added that the British market remained challenging.
The same month it formed a strategic partnership with Swiss-based hotel development company, LMEY, to grow its own-brand hotel portfolio. That has prompted a price war among tour operators to Spain, while allowing hotels to ramp up prices that Thomas Cook must pay, squeezing margins from both sides.
The company said it planned to take legal action against people who make false illness claims.
The holiday giant reported underlying earnings of £52 million for the United Kingdom division in the year to September 30, down from £86 million the previous year after it was knocked by rising hotel prices, the pound and intense competition in the Spanish market.
"Looking to the year ahead, we can see real momentum in our Group Airline, and expect our Continental Europe and Northern Europe tour operator businesses to continue their good performance".
The prior year results were restated.