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TUI blames Brexit, Boeing 737 Max grounding and 2018 heatwave for wider loss

For summer 2019, bookings are down 3% on last year with 59% of the total programme sold, compared to 62% at the same stage a year ago
TUI
The markets and airlines business was the biggest drag on TUI's overall performance

TUI AG (LON:TUI) saw its first-half loss widen, blaming last year’s summer heatwave, the grounding of Boeing 737 MAX aircraft, Brexit, and tough competition in Spain.

The FTSE 100-listed tour operator said it made an underlying loss (EBITDA) of €300.6mln in the six months to March 31, compared to an underlying loss of €169.7mln a year ago.

READ: TUI shares nosedive as it warns 2019 earnings could fall by over a quarter due to grounding of Boeing 737 MAX aircraft

The markets and airlines division was the biggest drag on performance with its underlying loss rising to €496.8mln from €375.5mln.

“As expected, the decline in markets and airlines' H1 result reflects the knock-on impact of the summer 2018 heatwave, overcapacities in Spain arising from the shift in demand to Eastern Mediterranean, continued Brexit uncertainty, as well as particularly strong comparatives for Nordics in H1 last year,” TUI said.

“In addition, the result includes the initial impact from the 737 MAX grounding, which commenced in mid-March, and the later timing of Easter this year.”

TUI confirmed the grounding of the aircraft could cost it up to €300mln as it makes alternative plans to fly customers to their holiday destinations, such as leasing more planes.

The 737 Max planes were grounded worldwide over safety concerns after an Ethiopian Airlines crash on 10 March killed 157 people and a Lion Air crash in Indonesia that killed 189 people last October.

TUI’s total turnover still edged up 1.7% to €6.7bn in the first half, driven by growth in its destination and holiday experiences businesses and cruises arm.

Summer bookings lower than last year

For summer 2019, bookings are down 3% on last year with 59% of the total programme sold, compared to 62% at the same stage a year ago.

Average selling prices are up 1% but TUI said a competitive pricing environment means this is not a sufficient increase to cover cost inflation.

“All markets are trading on lower margins then prior year, given the weaker demand environment and oversupply to some destinations such as Spain,” the group said.

“We have taken a disciplined approach to capacity, which is flat compared with prior year, at the same time enabling us to protect our strong market leading positions.”

Despite the pressures facing the markets and airlines business, TUI said its holiday experiences unit continues to perform well taking into account the gains on disposals in hotels and resorts last year.

TUI has opened 58 hotels since the 2014 merger of TUI Travel and its German parent company and plans to open more. The group has also launched three new ships and said it has seen good demand for these and the rest of its fleet.

Second half improvement expected

In the second half, TUI expects an improved performance due to Easter falling inside the reporting period and the benefit from investments in hotels, cruises and destination experiences.

The lifting of the 737 MAX grounding would also provide a boost to the second half, the company said.

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