- Holiday operator flags ‘encouraging’ booking momentum
- Incurs extra €75 million of flight disruption costs in Q3
- ‘Broadly’ break-even in the quarter
Shares in TUI (TUI) slipped 1.6% to 141p after the travel operator revealed an extra €75 million of flight disruption costs amid airports chaos which kept it in the red in the third quarter to June 2022.
However, the FTSE 250 holiday operator stressed it was ‘clearly profitable’ at the underlying earnings before interest and tax (EBIT) level before additional flight costs, and insisted booking momentum for the summer 2022 season ‘remains encouraging’ and will be ‘close’ to 2019’s pre-pandemic levels.
‘BROADLY’ BREAK-EVEN
Embattled TUI generated a ‘broadly break-even’ result for the third quarter, with underlying EBIT losses narrowing from €669.8 million to €27 million year-on-year. That represented a positive swing of €642.8 million, as customers rose by 84% versus pre-pandemic 2019.
The German travel firm also reiterated that it expects to return to ‘significant’ positive underlying EBIT for the full year to September, aided by cost savings, and restated its commitment to further reduce its debt pile and German government exposure.
‘The combination of unparalleled industry ramp-up after the Covid 19 pandemic compounded by a tight labour market, has seen the aviation industry confronted with significant operational issues and disruptions, resulting in the increase of delayed departures and flight cancellations,’ explained TUI.
‘This has been mainly caused by third party suppliers and airports due to a shortage in ground handling and airports security staff, reliability issues with lease-in partners and supplier maintenance delays.’
Nevertheless, group revenue climbed by €3.8 billion year-on-year to €4.4 billion in the quarter amid the return to a more pre-pandemic environment of restriction-free travel.
TUI also said booking momentum remains encouraging, with levels in line with normalised summer 2019 levels.
EXPERT VIEWS
Danni Hewson, AJ Bell financial analyst, commented: ‘With summer holidays in full flow, everyone who isn’t sitting on a beach is no doubt dreaming of putting their feet in the sea and kicking back with a cocktail in the sun.
‘It’s therefore understandable that TUI is confident about holiday demand for the rest of the summer. However, it cannot brush over the fact that flight disruptions are still a major thorn in its side.’
Julie Palmer, partner at business recovery firm Begbies Traynor (BEG:AIM), said: ‘We might want to jump on a jet and get away to the beach but chaos at airports is making that harder, no matter the strong demand from holidaymakers or the extra capacity TUI lays on.
‘The holiday firm’s interests which spread across hotels, cruises as well as airlines insulate it to some degree from understaffed airports but many consumers are looking at pictures of people sleeping on floors in airports and holding off from making bookings until it’s clearer that they will actually get on a plane.
‘The package holiday giant said it would have made an underlying profit in the third quarter if it hadn’t been for €75 million of flight disruption costs, signalling that TUI is bouncing back to close to pre-pandemic levels after two years of Covid hell.
‘Average spend by holidaymaker is up almost a fifth on pre-Covid levels, showing the desire for a decent foreign holiday - even in the face of higher costs as the war in Ukraine keeps jet fuel prices sky high.
‘How long that remains the case is uncertain though. Tough economic conditions mean consumers are watching their spending. With analysts predicting annual energy bills for typical UK households hitting £4,200 from January - equal to the average spend for a family of four to take two weeks in the sun - a holiday could soon be way down the list of priorities for many British families.’
DISCLAIMER: Financial services company AJ Bell referenced in this article owns Shares magazine. The author of this article (James Crux) and the editor (Daniel Coatsworth) own shares in AJ Bell.
