TUI AG (LON:TUI) maintained its guidance for the next three years after delivering earnings growth in 2018 but said it was concerned about losing flying rights after Brexit.
The travel operator said it was preparing for a possible ‘hard’ Brexit, which could lead to its airlines losing access to EU airspace.
READ: TUI maintains earnings guidance despite hot weather leading to more staycations
“We will continue to address the importance of there being a special agreement for aviation to protect consumer choice with the relevant UK and EU ministers and officials, and are in regular exchange with relevant regulatory authorities,” the company said.
The remarks come after Prime Minister Theresa May survived a vote of confidence in her leadership, which was triggered by 48 of her MPs who were against her Brexit policy.
May is now expected to travel to a summit in Brussels on Thursday to continue trying to persuade the EU to change the deal but leaders of the bloc have previously said that it cannot be renegotiated.
Earlier this week, she delayed a Parliament vote on her deal because it looked likely that MPs would vote against it as many believed it did not honour the 2016 referendum result.
“We are currently developing scenarios and mitigating strategies for various outcomes, including a ‘hard Brexit’, depending on the political negotiations, with a focus to alleviate any potential impacts from Brexit for the group,” TUI said.
TUI maintains three-year guidance
Provided the UK does not crash out of the EU without a deal, TUI continues to expect a compound annual growth rate in underlying earnings (EBITA) of at least 10% for the next three years to 2020.
For the 2019 financial year, it estimates underlying EBITA will rise by at least 10% to about €1.19bn, supported by investments, digitalisation, cost control and diversification across markets.
Turnover is expected to rise 3% to €19.52bn.
Growth in holiday experiences offsets decline in airlines
In the year to 30 September 2018, underlying EBITA increased to €1.15bn from €1.10bn last year, up 4.1% at actual foreign exchange rates or 10.9% at constant currency.
Turnover rose 5.3% to €19.52bn from €18.54bn on a reported basis, or 6.3% at constant currency.
The holiday experiences division led the growth with underlying EBITA up 147.2% at actual rates to €866mln, supported by demand for hotels, resorts, cruises and destination experiences.
READ: TUI maintains earnings guidance despite hot weather leading to more staycations
Underlying earnings in the markets and airlines business fell 74% to €526.5mln, as a heatwave in Northern Europe meant more people stayed at home instead of booking holidays.
The business was also hit by airline industrial action, tough competition and the bankruptcies of Air Berlin and Niki, with whom the company had lease agreements. In response, the company has reduced its flight capacity from Germany and the Nordics.
“We expect the challenging market environment to continue, and that this will be evident in our Q1/Q2 FY19 results,” TUI warned.
Winter bookings down, summer bookings up
Bookings for this winter are down 1% compared to the previous year and average selling prices are down 2% with 60% of the programme sold, two percentage points below last year.
Bookings for next summer are up 5% but average selling prices are down 1%.
The company raised its dividend per share by 10.9% to €0.72 and said it remains committed to raising the payout in line with underlying EBITA in 2019.
AJ Bell investment director Russ Mould said: “There is clear evidence that consumers increasingly want experiences over material goods. TUI has spotted this trend and repositioned its proposition accordingly.
“Rather than simply fly a customer to a different country and plonk them in a hotel and not bother about what they do in the day or night time, TUI is now curating the whole experience."
Shares jumped 6.4% to 1,212p in morning trading.