ii view: TUI loses over one billion euros

This travel company’s shares are down over 60% in 2020, but the Germans refuse to throw in the towel. 

Third-quarter trading update to 30 June

• Revenue down 98% to €72 million
• A loss of €1.1 billion (£995 million), down from a profit of €102 million
• Liquidity of €2.4 billion
• Net debt of €3.9 billion

ii round-up:

Travel company TUI (LSE:TUI) today posted a 98% plummet in sales and a loss of over €1 billion as the Covid-19 pandemic brought its holiday business to a grinding halt in the quarter period to the end of June. 

The loss was worse than City forecasts below €1 billion, with monthly cash burn of €600 million also greater than broker estimates nearer to €500 million. 

TUI shares fell by more than 7% in early UK trading and are down by more than 60% 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 55% in 2020. 

TUI cash liquidity now stands at €2.4 billion following a second line of credit from the German government just this week. Monthly cash burn during the current fourth quarter is expected to drop to around €100 million and remain around that. Which if so, means cash of €2.4 billion should see it through the usual loss-making winter season according to broker Morgan Stanley. 

Holiday operations resumed back in mid-June. All three of its cruise operations remained suspended throughout the third quarter. A total of 55 hotels reopened in the period, 15% of its total portfolio, as lockdown restrictions eased globally. 

Summer 2020 capacity has been cut to around a third of that offered last year. Winter 2020/21 capacity has been reduced to 60% compared to 2019. Bookings for Summer 2021 are up 145% as customers have looked to rebook holidays from this summer. 

A programme to permanently reduce the company’s cost base by 30% has been launched. Dividend payments and share buy-backs are now off the agenda given the current German government stabilisation package.

A confidential compensation agreement with aircraft maker Boeing (NYSE:BA) regarding its own fleet of grounded 737 MAX planes had recently been reached. Difficulties for Boeing aided a 15% decline for TUI shares over 2019.

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. 

Strategy at the vertically integrated holiday company has focused on four initiatives including growing its Hotels & Cruise businesses through asset expansion, becoming a more digitally orientated platform and increasing customer upselling by offering the potential of ‘One Million Things to Do’. Now, management has described the corona pandemic as “the greatest crisis the tourism industry and TUI have ever faced.” A downsizing of operations is now under way. 

For investors, actions being taken by the company to battle Covid-19 offer some reassurance. Group cash and facilities have been bolstered to €2.4 billion. Costs continue to be attacked and monthly cash burn is being reduced. But the degree of uncertainty looking ahead remains immense. For now, TUI is an investment only for brave investors taking a long-term view.

Positives: 

• Diversified asset portfolio
• Bolstered cash liquidity

Negatives:

• Net debt of €3.9 billion
• Significant uncertainty regarding the outlook

The average rating of stock market analysts:

Sell