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TUI narrows loss as strong demand for holiday packages lifts revenue

Summer holidays are 35% sold, driven by bookings for Greece, Turkey and Cyprus
TUI reaffirmed its 2018 guidance

TUI AG (LON:TUI) saw its shares advance today after the FTSE 100-listed travel firm delivered an 8.1% increase in first-quarter turnover on the back of strong demand for holiday packages and a pick-up in Turkey and North Africa.

In a trading update, TUI said turnover in the three months to 31 December 2017 rose to €3.5bn, up from €3.2bn the same period a year earlier, driven by growth in cruises, the hotels and resorts division and the ‘holiday experiences’ business.

READ: TUI AG to add more flights to fill gaps left by collapse of Monarch Airlines

The company said demand for trips to the Caribbean remained robust despite the disruption caused by hurricanes last year.

The underlying core loss narrowed to €25.4mln from €60.3mln the previous year and TUI said it was on track to increase underlying earnings (EBITDA) by at least 10% at constant currency this year.

Results included a €38mln gain on the disposal of three Riu hotels in the quarter, offset by a €20mln charge resulting from the bankruptcy of Air Berlin in December.

TUI held a wet lease contract with Niki, a former unit of Air Berlin, and had to renegotiate these agreements following the German carrier’s collapse.

However, TUI's net debt position improved by €644mln to €874mln, thanks to the gain from the Riu hotels disposal.

Summer and winter trading 

The company said 2018 summer holidays are 35% sold with revenues up 8% and bookings up 6%, boosted by bookings for Greece, Turkey and Cyprus.

Winter holiday bookings for the 2017/18 season rose 3% and revenue increased 6% with growth in bookings for North Africa, Thailand, Cape Verde and Cyprus. 

TUI opened eight hotels over winter and plans a further eight openings in summer after shedding some of its less profitable Riu hotels. 

Given the good performance in cruises, the group plans new launches for its TUI Cruises, Marella Cruises and Hapag-Lloyd Cruises brands in 2018 and 2019 along with a new ship planned for Spring 2023.

In afternoon trading, TUI shares were up 3% to 1,641.5p.

Investors welcome lower debt and improved underlying profits

"Shareholders are comforted by strong demand for holidays in the Northern and Central regions, summer already 35% sold (in-line) and continued improvement in destinations such as Turkey and North Africa which had been shunned following acts of terrorism," said Mike van Dulken, head of research at Accendo Markets.

"Very reassuring too is the growing cruises segment faring so well with revenues and profits jumping in spite of much implement weather in H2 last year.

"What’s really driving the shares to fresh record highs (10% bounce from last week’s sell-off lows), however, is likely lower debt and improved underlying profitability (excluding one-offs, disposals/acquisitions, restructuring charges etc; awkwardly plentiful in the latest period) leaving management comfortable enough - even at this early stage – reiterating FY growth guidance of underlying EBITA +10%, keeping it on track for a targeted doubling between FY14 and FY20."

AJ Bell investment director, Russ Mould commented: “Much of TUI’s future is about investing money into cruise ships and hotels which are considered to be higher quality growth channels for the business.

“The company’s cruise ships and hotels accounted for 56% of TUI’s earnings in 2017. They generate stronger margins and are less seasonal, thereby helping to spread earnings across the year rather than concentrating them on certain months.”

 -- Updates share price, additional analyst comment --

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