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TUI - losses narrow as demand picks up

Revenue rose 55.2%, ignoring the effect of exchange rates, to €6.9bn in the first half.

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Revenue rose 55.2%, ignoring the effect of exchange rates, to €6.9bn in the first half. This reflected a recovery in demand compared to the impact of Covid last year. In the second quarter, TUI had a load factor (a measure of how full planes are) of 93%, up from 85%.

Summer bookings are at 97% of pre-pandemic levels, and average like-for-like average selling prices are up 8% on last year.

Despite the increase in revenue, there was an operating loss of €406.3m. This was around €200m narrower than last year. The losses stem from a €2.2bn increase in basic costs, as well as a 30.9% rise in administrative expenses. Holiday Experiences saw a significant improvement in profits, led by Hotels & Resorts and Cruises.

Net debt was €260.4m higher at €4.2bn. The group confirmed it raised €1.8bn in the recent rights issue, allowing it to pay down government debt taken on to fund it through Covid.

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

The shares fell 3.0% following the announcement.

View the latest TUI share price and how to deal

Our view

There weren't too many surprises at the half year mark. Revenues have been a bit better than expected, but profits are in-line. Demand is looking brighter as travel rebounds, and flight capacity for the important summer season is set to be firing on all cylinders.

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 maintaining pre-pandemic levels is also a much higher priority. The drains on cash when you have planes and huge hotels (not to mention cruise ships) to fill are enormous.

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.

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Written by
Sophie Lund-Yates
Sophie Lund-Yates
Lead Equity Analyst

Sophie is a lead on our Equity Research team, providing research and regular articles on a selection of individual companies and wider sectors. Sophie's specialities are Retail, Fast Moving Consumer Goods (FMCG), Aerospace & Defence as well as a few of the big tech names including Facebook and Apple.

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Article history
Published: 10th May 2023