ii view: TUI braced for long, harsh winter

With highly fluid government travel advice and pressured cash liquidity, should investors get away?  

Full-year trading update to 30 September

• Total cash and available facilities of €2 billion
• Pursuing permanent cut to annual cost base of 30%

Chief executive Friedrich Joussen said:

“We have successfully restarted our operations; customers are enjoying their holidays with newly adapted hygiene protocols and we have taken 1.4m customers on their holidays since restart. Destination availability at present is highly influenced by government policy and development of the pandemic, meaning the environment remains volatile, and is likely to remain so for the next few quarters.”

ii round-up:

German headquartered holiday company TUI (LSE:TUI) today further reduced its coming winter season packages as a second spike in coronavirus cases across Europe led governments to retighten distancing and travel measures. 

Having already cut its winter programmes down to 60% of their normal amount, it flagged another 20% reduction.

TUI shares were little changed in afternoon UK trading having fallen by more than 70% year-to-date.  Shares for British Airways owner IAG (LSE:IAG) are down by a similar amount while easyJet (LSE:EZJ) shares are down around 65% in 2020. 

TUI’s total cash and available facilities currently stand at €2 billion. Down from €2.4 billion reached back in August following a second credit injection from the German government. The drop largely follows customer travel refunds. Speculation regarding the need for an equity fund raising continues to swirl. 

Management expects travel advice by governments to remain highly fluid. Revenues for the third quarter to the end of June fell by 98% with a loss of just over €1 billion made. 

Just over two-fifths or 157 of its owned hotels had reopened by the end of August. Its cruises business had recommenced short European cruises from the end of July. 

Under its global realignment programme, it is now pursuing a permanent reduction in costs of 30% across the company. It repeated its previous expectation of operating 80% of its adjusted capacity over the summer season of 2021.  

ii view:

With so many factors outside of management’s control potentially influencing performance such as terrorism, fuel prices, currency movements, the holiday business can be a volatile and high-risk industry in which to invest at the best of times. 

The German travel group previously described the corona pandemic as “the greatest crisis the tourism industry and TUI have ever faced.” Having not so long-ago fostered ambitions of growth, it is now busy downsizing its operations. 

For investors, actions being taken by the company to battle Covid-19 offer some reassurance. The German government has intervened to bolster its balance sheet, while costs continue to be attacked. But the degree of uncertainty looking ahead remains immense. Speculation regarding the need for a further fundraising persists, while governments across Europe are now reinforcing social distancing measures and in no mood to relax travel restrictions. In all, TUI remains an investment for brave long-term speculative investors. 

Positives: 

• Diversified asset portfolio
• Pursuing a reduced cost base

Negatives:

• Speculation regarding a further need to raise funds
• Significant uncertainty regarding the outlook

The average rating of stock market analysts:

Sell