There may be light at the end of the tunnel, but TUI has a lot of catching up to do.
TUI AG (LSE:TUI) is entering a crucial phase of its recovery, with just a few glimmers of hope that it may be able to return to some level of profitability.
The worst scenario, as described by the company, is that in the absence of an increase in new bookings in the coming months, there is a risk that the group will no longer have sufficient financial resources to continue its operations without further financing or the sale of assets.
This is reflective of the inevitable chaos wrought by the pandemic.
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Net debt has increased to €6.8 billion at the half-year stage, up 39% year-on-year, although it's down by 5% since the end of the fourth quarter in 2020. A number of financial measures have been put in place, such as a €500 million rights issue, and the group currently has access to liquidity of €1.7 billion, which provides some shorter-term solace.
In the meantime, revenues have unsurprisingly declined by 89% and the loss has worsened by 84% to €1.5 billion euros, starkly highlighting the need for a return to some kind of normality.
More positively, given that the half-year results are to the end of March before the lifting of travel restrictions was confirmed, the level of bookings is promising.
The company is anticipating a return to 75% of capacity as compared to 2019, with a pipeline of 2.6 million customers. Prices on average are 22% higher than that period, due largely to a high proportion of all-inclusive packages being booked within the mix. Even so, summer bookings are 69% lower than 2019, although in terms of outlook the picture is more positive, with TUI confirming that winter 2021/22 bookings are up by 17% and summer 2022 bookings by 293%. As such, the group expects a muted third quarter of this year, with strong volumes in the fourth quarter driving towards a normalised level of operations.
Until then, the company projects that it will achieve around half of its planned €400 million cost savings per annum by the end of this year, with the ultimate aim for the savings due by 2023.
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The share price has rebounded strongly since the initial vaccine announcement in November and has added 142% over the last year, as compared to an increase of 37% for the wider FTSE 250 index.
However, to put its travails in context, over the last three years the price remains down by 60%, including relegation from the FTSE 100 in March 2020. While the potential for a recovery is evident for travel companies in general, investor sentiment towards TUI is currently sceptical, with the market consensus of the shares as a 'sell' still in place.
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