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TUI - passenger numbers up, full year guidance intact

TUI saw 3.3m passengers depart in the first quarter, up 1.0m from the same time last year...

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TUI saw 3.3m passengers depart in the first quarter, up 1.0m from the same time last year. This helped revenue rise €1.4bn to €3.8bn.

Underlying operating losses narrowed to €153m, from €273.6m last year. There was growth from TUI's biggest divisions, Hotels & Resorts and Holiday Experiences, while Cruises swung from a loss to a small profit.

The group's sold 85% of its Winter programme for this year, which is in-line with pre-pandemic levels. Average selling prices have been 29% up. The group said booking volumes overall in the last four weeks are now above pre-pandemic levels, and are up 5% for Winter 2022/23 and 10% for Summer 2023. This has allowed TUI to reiterate plans to "significantly" increase underlying operating profits for the full year.

Net debt was €5.3bn as at the end of December, broadly in-line with the previous year.

TUI shares rose 1.9% following the announcement.

View the latest TUI share price and how to deal

Our view

TUI has 1m more passengers than the same time a year ago. By anyone's estimations, that's good going. Bookings for Winter and Summer are improving as pent-up travel demand helps buoy revenues.

And TUI doesn't just run flights, it has a much wider package holiday business. In some ways that's what 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 and are especially eye-watering when looked at as a proportion of profits. Immediate concerns have been alleviated with cash raised from large placings of new shares. But getting 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. Sunny getaways are far from front of mind for much of the core demographic these days. Summer holidays tend to be booked at shorter notice, so only time will tell how well TUI manages to sell the rest of its summer programme.

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.

The final thing to keep in mind is that TUI's largest shareholder is Russian billionaire Alexey Mordashov. Mordashov has been sanctioned by the EU because of repercussions from the war in Ukraine. This isn't a flashing red indicator, but being reliant on a higher-risk individual as your biggest investor increases the risks of some ups and downs. It also invites questions from socially minded investors.

TUI faces challenges. There's the 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: 14th February 2023