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TUI says rights issue an option after turnover tanks due to coronavirus

“2021 will be a year of transition and we expect a normalised level of business from 2022,” the company said


TUI AG (LON:TUI) said it is considering a rights issue or a sale of part of the business after reported an eye-popping 98% drop in revenue and a €1.5bn loss for the past quarter as the coronavirus (COVID-19) pandemic takes its toll on the travel sector.

The Anglo-German tour operator has now lost roughly €2.3bn for the first nine months of its financial year to June 30, 2020, made up of €1.3bn of underlying costs from a business that had been pretty much shut down since March, plus €410mln of impairments and €189m of costs from ineffective hedges.

Bookings for the current summer are down 81% on last year and average selling prices 10% lower, with just 16% of its original programme sold because of cancellations since mid-March, versus 88% sold at the same point last year. 

Even with a newly constricted tour capacity, with 55 hotels or 15% of its total estate reopened in the quarter but UK and German cruise operations still shut under government orders, it is currently only 57% sold.

Looking forward

But, having secured an extra €1.2bn rescue package from the German government on Wednesday, and completed an aeroplane sale and leaseback deal earlier in the month, the FTSE 100-listed group said it can plan better for the coming holiday seasons. 

TUI, which expects the fourth quarter to be cash-breakeven, has cut capacity plans for both the coming winter and next summer by 40% and 20% respectively, to reflect government advice and consumer demand.

Bookings for summer 2021 are up around 145% with average selling prices lifted 9%, as of August 2.

“FY21 will be a year of transition and we expect a normalised level of business from FY22,” the company said, with next year’s ‘transition’ including accelerated digitalisation initiatives, delivering a 30% reduction in costs and rebuilding its financial profile.

It added that the board is evaluating further options to “achieve the optimal balance sheet structure”.

When asked on a conference call whether these options referred to a possible rights issue and divestments, TUI chief executive Fritz Joussen: “Yes that's what it is.”

TUI shares were down more than 3% to 355p on Thursday morning, around two thirds lower than at the start of the year.

Analysts at UBS said the results were worse than it expected but noted that with 57% of its adjusted summer program sold versus 87% a year ago this illustrates that “bookings are coming closer to the departure date”. 

TUI's travails provide “a taste of the real economy”, said Neil Wilson at Markets.com, a counterpoint to the ever-rising stock markets in some parts of the world.

   --Adds detail, share price and broker comment--

Quick facts: TUI AG

Price: 270.6 GBX

Market: LSE
Market Cap: £1.6 billion

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