Tui Travel bookings beat the slowdown
Tui Travel, Europe’s largest travel operator, said holiday booking continued to be robust as customers were not prepared to forgo their summer holiday despite the credit crunch.
Chief executive Peter Long said the group’s “power brands” – Thomson in the UK and Tui in Germany – were holding up well in the economic climate.
“It seems that our customers are not prepared to forgo their main summer holiday and we don’t believe they are prepared to forgo their second winter holiday either, no matter how hard the credit crunch hits,” he said.
The unpredictability of English summer weather was also driving people overseas, while cheaper destinations outside of the Eurozone were proving more popular.
Tui Travel reported a 39 per cent rise in third-quarter underlying operating profit to £65.4m, while group pre-tax profits before exceptional items increased six-fold to £171m
The number of summer holidays available had been reduced as the company stripped out unprofitable destinations as part of the merger between Thomas and First Choice, Long said.
However, it expects sale prices to rise by 6 per cent in the UK and between 2-4 per cent in other markets. The group said it was also on track to make £150m in cost savings and had hedged some of its fuel and foreign exchange to protect against risk.
Numis Securities analyst Wyn Ellis said the statement “paints a very encouraging picture” and reiterated the stock as a buy with a target price of 303p.
Tui shares fell 5 per cent to 222.75p.
Analysts: Can TUI continue to withstand the downturn?
Mark Reed (Landbanski): “Yes: TUI have not seen a slowdown in 2008 and have performed strongly. I am confident that 2009 will be another good year for them because they have acted responsibly now by cutting charter capacity and raising prices. They are sure to increase their hold on the market with the command they have over hotels.”
Darren Greenfield (Collins Stewart): “Possible: In order for TUI to maintain the same profit margin they will need to increase prices by 6 per cent and reduce costs, particularly on jet fuel. For this they intend to reduce aircraft capacity by 15 per cent. However, this will prove tough to implement; the aircraft leases are both difficult and expensive to terminate.”
Cameron Cartmell (Ernst & Young): “Most people would have booked their holidays before food and energy price rises started to hit them in the last three to four months, so there is a bit of a lag which will show up among travel companies results in the next half. In the next year travel companies will need to manage costs and revenues.”