Third-quarter revenue fell by 5.6% to €5.8bn (€6.0bn expected) with a 7.9% decline in Markets + Airline more than offsetting growth in Holiday Experiences.
Underlying operating profit was down 27.1% to €234mn (€275mn expected) including a €20mn direct impact from the Iran war. The rest of the decline mainly driven by Markets + Airline where weak demand was compounded by higher fuel prices.
Free cash flow swung from €431mn inflow to an outflow of €189mn over the first 9 months which reflected a later booking pattern. Net debt rose 22.9% to €2.3bn.
Full-year revenue guidance remains suspended with underlying operating profit guidance range unchanged at €1.1-€1.4bn.
The shares were down 3.0% in early trading.
Our view
TUI’s third-quarter performance fell short of expectations, with the Markets + Airline division proving more exposed to demand challenges and higher fuel prices than its flagship hotels and cruise operations. But with bookings momentum for the crucial summer season improving, full-year operating profit guidance remains intact at €1.1-€1.4bn.
The final outcome will still depend heavily on delivery in the fourth quarter, which does a lot of the heavy lifting for the year. However, analyst forecasts are already sitting just in the upper half of that range, and we do not expect much movement in consensus following the update.
TUI operates a diverse travel business spanning airlines, cruise ships, hotels and resorts, serving over 20 million customers across more than 180 destinations. Its lower-margin Markets and Airline segment serves as a customer-acquisition tool, funnelling guests into its other, more profitable divisions.
SunDeals is TUI’s new standalone budget brand, aimed at value-conscious travellers who might otherwise piece together cheaper flights and hotels through online travel agents and low-cost airlines. It should allow TUI to target a broader customer base while protecting the core brand’s more premium positioning. But this is a fiercely competitive market, so delivery will be key.
We’ve been impressed with TUI’s progress in recent years. Digital investments have helped drive higher sales, strong demand meant profits were growing faster than revenues, and balance sheet health was improving.
The group has also made a conscious effort to balance guaranteed capacity, which carries financial risk if left unsold, with more flexible options. That discipline should help support pricing through a more challenging period, even if the Middle East conflict is weighing on demand over the crucial summer season.
Later booking patterns are also making cash flow less predictable, with more cash arriving closer to departure. The balance sheet is in decent shape, but we could start to see net debt trend higher again. As a result, dividends could become less of a priority.
TUI is doing what it can to navigate a difficult backdrop, from managing capacity more flexibly to protecting pricing where possible. The valuation, at a mid-single-digit earnings multiple, and a respectable, albeit variable, dividend yield look tempting on a longer-term view. But geopolitical instability has added more unpredictability than usual, leaving scope for sentiment to weaken further before confidence improves.
Environmental, social and governance (ESG) risk
The transport industry is medium risk in terms of ESG, with European firms managing them better than others. Carbon emissions, product governance, and quality & safety are the biggest risk drivers. Other key areas are emissions, effluents & waste, labour relations, and employee health & safety.
According to Sustainalytics, TUI’s management of ESG risk is average.
TUI has a very strong whistleblower programme and has appointed board-level responsibility for overseeing ESG issues. However, ESG disclosures fall short of best practice, and there is no reference to linking executive pay to ESG targets.
TUI key facts
All ratios are sourced from LSEG Datastream, based on previous day’s closing values. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn’t be looked at on their own – it’s important to understand the big picture.
This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by LSEG. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.
This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment.