ii view: TUI flying low through economic storm

Shares in this major holiday company have halved year-to-date. We assess prospects. 

Fourth-quarter trading update to 30 September

• UK cumulative bookings 4% ahead of summer 2019
• Winter bookings are now at 78% of pre-pandemic levels

Guidance:

• Repeats its expectation to return to significant positive underlying adjust profit (EBIT) this financial year

Chief Executive Fritz Joussen and CFO Sebastian Ebel said:

"In 2022, we see a strong travel summer almost at the same level as summer 2019. We confirm our guidance and will successfully close the 2022 financial year with a significantly positive underlying EBIT. In the UK, bookings continue to be well above pre-crisis levels at +4% and bookings in Germany and the Netherlands have also been above pre-crisis levels in recent weeks. 

“The trend has been towards higher value or longer holidays with a higher overall holiday budget. This is encouraging and shows the current importance of holidays and travel experiences in the post-Corona era.”

ii round-up:

TUI AG (LSE:TUI) is a German headquartered integrated holiday company. 

Its operations include 1,600 travel agencies and a collection of online booking portals. It also operates five airlines with around 150 aircraft, over 400 hotels and 16 cruise liners. 

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For a round-up of this latest trading update on 20 September, please click here.

ii view:

In 2007, German tour operator TUI AG merged with First Choice Holidays of the UK. Today, the FTSE 250 company provides holidays to more than 25 million customers at around 180 worldwide destinations. Germany provides its biggest slug of sales at around a third, followed by the UK at just under a fifth. Its owned hotels offer more than 200,000 beds in around 30 different countries while its airline fleet competes with the likes of easyJet (LSE:EZJ), Ryanair and even International Consolidated Airlines Group SA (LSE:IAG). 

For investors, a recovery in bookings from the depths of the pandemic has been seen, with losses for 2021 greatly reduced from those suffered in 2020. Management continues to expect to return to positive underlying adjust profit (EBIT) this financial year, while the German government previously moved to assist TUI in bolstering its balance sheet when required. 

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Less favourably, the headwind of the pandemic has been replaced by a highly uncertain economic outlook and a cost-of-living crisis for its customers. Willingness to travel in the wake of the Covid crisis may now be hindered by the need to save money to cover elevated energy bills and rising interest rate costs. The dividend payment remains halted following its suspension during the pandemic, while concerns about the strength of its balance sheet and the potential for a further fundraising persist. 

On balance, and while trading has improved, concerns about the outlook and possible need for more money may mean that investors watch this one from the sidelines for now. 

Positives: 

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

Negatives:

• Highly uncertain economic outlook
• Dividend still suspended

The average rating of stock market analysts:

Sell