TUI’s second-quarter revenue rose 1.5% to €3.7bn (€3.8bn expected), driven by higher prices.
Underlying operating losses widened by €18mn to €207mn (€224mn loss expected). There was a €32mn negative impact from Easter being later this year and falling into the following quarter. Strong growth in Cruises was more than offset by declines in its other divisions, largely due to the late timing of Easter.
Underlying free cash flow rose by €0.1bn to €1.0bn in the quarter. Net debt improved by €0.1bn to €3.0bn year on year.
Despite some softness in bookings in Germany, full-year guidance has been reiterated. Revenue is expected to increase by 5-10% (2024: €23.2bn) and underlying operating profit is expected to grow by 7-10% (2024: €1.3bn).
The shares fell 9.4% in early trading.
Our view
TUI continues to deliver progress despite the unfavourable timing of Easter weighing on second-quarter numbers. Markets chose to look ahead at bookings, and some signs of softness in Germany caused the shares to tumble on the day.
We think those fears are overblown though. Management commentary confirmed that the weakness was due to timing issues rather than an underlying problem with the region. They were also quick to point out that bookings across both the UK and Germany had improved since early May, despite not compromising on pricing. As a result, we view full-year profit guidance as very achievable, although there are no guarantees.
TUI operates a diverse travel business, owning an airline, cruise ships, hotels, and resorts, and serves over 20 million customers across more than 180 destinations. Despite broader economic pressures, consumers have been prioritising travel, enabling TUI to raise prices while filling more rooms and cruise cabins.
In some ways, having a wide package holiday business 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 occupancy rates holding firm across the business comes as welcome news.
TUI has made a conscious effort to balance the amount of guaranteed capacity (which carries financial risk if not sold) with options that can be adjusted based on demand. This gives a much more robust earnings profile than a few years back.
Debt levels have been a concern in the past but are now at a level we’re comfortable with. Continued improvements on this front will be key to any potential return of dividends, which are never guaranteed. Bear in mind now that the shares are no longer listed in London, any dividend income may now be subject to withholding tax.
We can't knock progress but remain wary of some wider risks. The knock-on effects of tariffs and tensions in the Middle East and the Suez Canal have the potential to disrupt business and put some customers off travelling. This is largely outside of TUI’s control and can make it difficult to map demand accurately.
TUI’s diverse offering and attractive valuation offer both upside potential and some downside protection, making it one of our preferred names in the sector. But the cyclical nature of the industry, as well as the sensitivity of demand to macro-events, means there are likely to be more ups and downs ahead.
The author holds shares in TUI.
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
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