Welcome to HL's reimagined News, Insights and Research experience. Find out more

Share research

TUI - higher volumes help fuel TUI's revenue uplift

TUI's third-quarter revenue rose 20% to €5.3bn, ignoring the impact of exchange rates.

No recommendation - No news or research item is a personal recommendation to deal. All investments can fall as well as rise in value so you could get back less than you invest.

Prices delayed by at least 15 minutes

This article is more than 6 months old

It was correct at the time of publishing. Our views and any references to tax, investment, and pension rules may have changed since then.

TUI's third-quarter revenue rose 20% to €5.3bn, ignoring the impact of exchange rates. This was helped by improved volumes of customers as well as higher prices.

Underlying operating profit landed in at €170.7m, up from a loss of €27.0m. The improved performance was mainly driven by the Cruises and Markets & Airlines divisions, which both benefitted from improved demand.

Net debt improved from €3.3bn to €2.2bn, helped by the equity raise earlier in the year. Free cash flow over the first nine months fell from €1.7bn to €0.7bn.

TUI continues to expect underlying EBIT for the full year to increase "significantly", reflecting the recent momentum seen in bookings.

The shares rose 1.8% following the announcement.

View the latest TUI share price and how to deal

Our view

Demand's looking brighter as travel rebounds, and flight capacity at the start of the important summer season has been firing on all cylinders. A total of 5.5m customers enjoyed a holiday with TUI in the third quarter, up 9% on the prior year. And supported by these higher volumes of sun-seekers as well as price hikes, revenues soared upwards at double-digit rates.

And TUI doesn't just run flights, it has a much wider package holiday business. In some ways that makes it more defensive - there's more to offer and plenty of cross-selling opportunities. But the drains on cash when you have planes, huge hotels and even cruise ships to fill are enormous, so returning to pre-pandemic levels is key. Good progress is being made on this front with customer numbers now up at 95% of 2019 levels.

We're especially encouraged by TUI's ability to increase its prices. That shows how important travel is to customers, and the strength of the brand. We can't knock progress, but remain wary on some specific risks.

The most important thing to consider is higher-than-average liquidity risk. Debt levels are much higher than we'd like, even after the recent rights issue which raised €1.8bn, and are especially eye-watering when looked at as a proportion of profits. Immediate concerns have been alleviated, but continuing to get debt back under control is a priority, and means dividends are off the table for now.

A cost-of-living crisis means it's almost impossible to map demand accurately too. We're the first to admit that recent booking momentum has been better than feared, but the question is how long that will continue. A lot of this will be outside TUI's control, but the powers-that-be will certainly be hoping for a soft economic landing.

TUI was concerned about over-capacity in the wider industry before the pandemic. This is an ongoing concern in our opinion, despite the challenges faced by the sector in the last couple of years. TUI doesn't appear to be trimming its own capacity in readiness for an economic contraction and instead relies on a hybrid approach of own and third-party operated flights, which reduces, but doesn't eliminate, the risk caused by an over-supplied and overly competitive industry.

There's potential for TUI to do well in the future thanks to its more diverse offering, and investors could be rewarded for their patience. But without a dividend to sugar-coat the extra risk involved, we struggle to get too excited as things stand.

TUI key facts

All ratios are sourced from Refinitiv. 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 Refinitiv. 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. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research disclosure for more information.

Latest from Share research
Weekly newsletter
Sign up for editors choice. The week's top investment stories, free in your inbox every Saturday.
Written by
Aarin Chiekrie
Aarin Chiekrie
Equity Analyst

Aarin is a member of the Equity Research team. Alongside our other analysts, he provides regular research and analysis on individual companies and wider sectors. Having a keen interest in global economics, he knows how macro-events can impact individual companies.

Our content review process
The aim of Hargreaves Lansdown's financial content review process is to ensure accuracy, clarity, and comprehensiveness of all published materials
Article history
Published: 9th August 2023