ii view: TUI flies back into profit

Third-quarter results to 30 June

• Revenue up 19% to €5.3 billion
• Adjusted profit of €169 million, up from a loss of €27 million
• Net debt of €2.2 billion, down from €3.3 billion a year ago

Guidance:

• Continues to expect a significant increase in full-year underlying or adjusted profit

Chief executive Sebastian Ebel said: “Summer 2023 is going very well and demand for holidays remains high. The Mediterranean remains the most sought-after destination for summer holidays. The heatwave in northern Europe in June and the wildfires in southern Europe have only dampened temporarily the previously strong development, but overall it will be a very good travel summer and a good year for TUI in 2023.”

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ii round-up:

German-headquartered holiday company TUI AG (LSE:TUI) today reported a return to a third-quarter adjusted profit for the first time since the pandemic. 

Sales jumped by almost a fifth to €5.3 billion for the three months to the end of June as consumer appetite for travel proved strong following the global pandemic. That pushed adjusted or underlying profit to €169 million from a loss this time last year of €27 million. The cost to TUI for the recent wildfires in Greece amounted to €25 million. 

Shares for the FTSE 250 company rose by more than 2% in early UK trading having come into this latest news down by close to a fifth over the last year. Shares for fellow cruise line operator and insurer Saga (LSE:SAGA) are down by 14% over that time. The 250 index itself has fallen by close to 5%. 

TUI’s operations include more than 400 hotels, over 130 aircraft, 16 cruise ships and more than 1,000 travel agencies.

Summer bookings are running 6% ahead of this time last year at increased prices with bookings sat at 95% of the pre-pandemic summer 2019 level. 

TUI, whose brands include Riu hotels and Marella cruises, continues to expect a significant increase in current full-year underlying or adjusted profit compared to last year, although with no actual forecast yet being made.

In June, Sebastian Ebel replaced Friedrich Joussen as chief executive following his resignation from the board. 

Group net debt at the end of June totalled €2.2 billion, down from €3.3 billion a year ago and with its credit rating recently upgraded. Net debt of €2.4 billion is forecast come the year end given additional €150 million of hotel investments. 

Fourth-quarter and full-year results are likely to be announced in mid-December.

ii view:

In 2007, German tour operating business TUI AG merged with First Choice Holidays of the UK. Today, the German and UK stock market listed company, whose services covers the entire tourism value chain, provides holidays to around 180 worldwide destinations. Its hotel brands include Robinson and TUI Blue, while its airline fleet competes with the likes of easyJet (LSE:EZJ), Wizz Air Holdings (LSE:WIZZ) and even International Consolidated Airlines Group SA (LSE:IAG). Its sustainability policy is committed to reducing emissions across its airline, cruise and hotel operations by 2030.

For investors, the challenging economic backdrop including heightened interest rates cannot be ignored. Geopolitical tensions raised by the war in Ukraine could still spread, factors potentially impacting the travel industry such as air traffic control strikes remain numerous, while its dividend payment is still suspended. 

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On the upside, a recovery in demand and revenues from the pandemic are clear to see. Rising costs are being countered with higher prices, TUI’s integrated business model gives it more control than, say, the relatively new easyJet Holidays business, while management’s focus on reducing debt is ongoing. 

For now, and while a good dose of caution remains sensible, the very worst of the company’s challenges look to be behind it. 

Positives: 

• Diversified asset portfolio
• A lower cost base following the pandemic

Negatives:

• Tough economic and geopolitical backdrop
• Dividend payment halted

The average rating of stock market analysts:

Hold