TUI AG (LON:TUI) shares plunged 16% as it cut its annual earnings forecast after last year’s summer heatwave led to more staycations and a weaker pound diluted British travellers’ purchasing power abroad.
The tour operator now expects underlying earnings (EBITDA) for the year to September 30 to be broadly flat from the €1.177bn it generated in the 2018 financial year.
READ: TUI AG prepares for potential hard Brexit as it posts 2018 earnings growth
The company also warned that it no longer expects to achieve at least 10% annual growth in underlying EBITDA at constant currencies in the three years to 2020.
TUI said the prolonged hot weather over summer in 2018 had resulted in later bookings while the continued weakness of the pound made it difficult to improve margins on holidays sold to UK customers.
Similarly, rival Thomas Cook blamed the heatwave on a wider loss for in the first quarter.
READ: Thomas Cook suggests possible sale of airline business as it posts wider quarterly loss
TUI added that a shift in demand from the western to eastern Europe had created overcapacities in certain destinations such as the Canary Islands.
About 34% of the 2019 summer programme for markets and airlines is booked so far. Bookings are broadly in line with last year but margins “are not”, the group said.
“We are already taking specific measures to address markets and airlines headwinds, including harmonisation under one leadership to drive cost savings and efficiencies; reducing distribution costs by shifting to more direct, more online, more mobile; and increasing upselling of activities & excursions to drive revenue and margin benefits,” TUI said.
“We also expect that the continued sector headwinds may trigger market consolidation and that TUI could be a beneficiary of this.”
Demand for leisure travel continued to grow in core markets despite the challenges in markets and airlines, supported by the holiday experience division that includes hotels, cruises and activities and excursions.
Holiday experiences accounted for 70% of earnings in the fiscal year 2018 and TUI expects a “continued strong performance from these parts of our business”.
TUI said it expects the ongoing digitalisation of the business to drive future earnings, positioning it to benefit from the strong “mid- to long-term” growth in consumer demand for leisure travel.
The group plans to enter new markets generating €1bn of revenue from one million customers by 2022, which is expected to boost demand for its own hotels.
In morning trading, shares were changing hands at 988p each.