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TUI maintains earnings guidance despite hot weather leading to more staycations

TUI said the financial year is closing out as expected with the fourth consecutive year of double-digit growth in underlying earnings
Demand for Greek holidays increased

TUI AG (LON:TUI) shares flew higher as it stuck to its full year earnings guidance despite a hot summer leading to more staycations in the UK.

The travel company continues to expect underlying earnings to rise at least 10% at constant currency this year even as it sees the Turkish Lira having a bigger impact than previously anticipated.

READ: Thomas Cook plunges as 2018 profit outlook chopped on more discounting, tougher competition after summer heatwave

It now expects to take a €70mln hit from foreign exchange winds, up from the €35mln previously announced, due to the further devaluation of the currency in Turkey.

Chief executive Friedrich Jousse said the financial year is still closing out as expected with the fourth consecutive year of double-digit growth in underlying earnings.

“Having continued to expand our hotel and cruise offer, occupancies and yields remain high, and the number of customers purchasing holidays from us has grown in all major markets, even with the sustained period of hot weather in Northern Europe this Summer,” he said.

“This demonstrates the strength and resilience of demand for our holiday experiences, although as previously stated the hot weather has limited our ability to outperform.”

Rival holiday firm Thomas Cook PLC (LON:TCG) issued a profit warning on Monday as demand for overseas holidays declined as more people decided to stay at home and enjoy the hot weather.

TUI had warned in August that the warm summer months might prevent it from exceeding forecasts but said it was still on track.

READ: TUI shares fly lower as traffic control strikes hit third-quarter earnings

“Overall, trading since our last update has remained in line with our expectations,” TUI said on Thursday.

Demand for holidays to Turkey and North Africa picks up

The company said its strategy of having a balanced portfolio of hotels and resorts in a number of destinations continues to pay off while it has seen the benefits of a return to demand for trips to Turkey and North Africa as well as increased popularity of Greek holidays.

In the cruises business, the launches of the new TUI Cruises Mein Schiff 1 and Marella Explorer this summer “have gone very well and yield performance remains strong across our three fleets”, TUI said. It plans to launch a further three new ships in the next financial year. 

TUI's destinations division, which offers excursions and activities to holidaymakers, continues to "perform well" with strong organic growth in the fourth quarter following the acquisition of part of Spanish hotel room specialist Hotelbeds Group.

"Given the recent profit warning from peer Thomas Cook these figures are pleasing and the fact that the company again reiterated its previous guidance of a 10% rise in full-year earnings was also good news. We continue to recommend TUI as a ‘buy’ for medium risk investors thanks to the growth potential, the benefits of scale and healthy dividend yield," said Ian Forrest, investment research analyst at The Share Centre.

Winter and summer bookings up

Customer volumes in sales and marketing for summer bookings in 2018 rose 4% with 98% of the programme sold, resulting in a 5% increase in revenue.

For winter 2018/19 bookings, customer volumes are up 2% with around one-third of the programme sold.

TUI said it is seeing a later booking profile this winter in the Nordics, in line with the market, against strong prior year comparatives and as a knock-on impact from the prolonged hot summer in Scandinavia.

Trading for future summer and winter seasons are in line with expectations, the group added. 

"It’s early days for winter bookings, but it’s still good to hear that most markets are up on last year," said Lee Wild, head of equity strategy at Interactive Investor.

"However, Scandinavians are only just recovering from the hot summer, and are clearly in no mood to book ahead just yet. That’s clearly an area to watch carefully."

Shares rose 1.8% to 1,465p around noon.

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