While the Anglo-German tour operator enjoyed a boost from Thomas Cook's collapse, with customers forced to rebooked their cancelled trips, the bank predicts TUI's full year numbers to be below market expectations.
TUI's dividend faces the risk of around a 30% cut, the analysts reckon, as they forecast "weak" free cashflow in the coming year.
This raises doubts about the divi that have existed for some time, with TUI one of the highest yielding stocks in the FTSE 100.
Cutting their rating to 'equal weight' from 'overweight', the Morgan Stanley analysts said that TUI's guidance for the next full year is likely to be imprecise because of the uncertainty around market demand due to the recent market turbulence and costs from the grounding of Boeing 737 Max planes.
With the 737 unlikely to be back in service by the end of the year, this means related costs for TUI are expected to come in closer to €150mln than €50mln, with a later return to service potentially knocking profits by up to €350mln.
The success of TUI's plan to increase 2020 capacity by around 10% by adding 1.5m extra holidays depends on consumer demand and how competitors respond, the analysts said in a note.
With Morgan Stanley's share price target trimmed to 1,050p from 1,150p, the shares followed suit, quickly dropping 6% to 1,007p on Tuesday.