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TUI - summer trading holding up well

TUI has reconfirmed expectations for the full year. It

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TUI has reconfirmed expectations for the full year. It expects to report "significantly" higher operating profit for the fourth quarter and the full year.

Summer 2023 booking are up 5% on last year in Markets & Airlines, and stand at 96% of pre-Covid levels. The summer season has been extended to November to cover increased demand in certain destinations. Winter bookings for the current financial year are currently 29% sold.

Cruise occupancy rates are up 9% and the group expects to operate a full fleet of 16 ships in the Winter season.

TUI shares rose 6.2% following the announcement.

View the latest TUI share price and how to deal

Our view

The market's been very pleased by TUI's trading update ahead of more detailed full year results. Bookings are within a whisker of pre-pandemic levels, and customers appear to be stomaching price increases. While it's the airline side of things that grab a lot of attention, of course 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 96% 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.

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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: 19th September 2023