TUI’s full-year revenue is expected at the lower end of its 5-10% growth guidance, ignoring exchange rates. Growth was driven by increased occupancy and prices across its Hotels and Cruise segments, partly offset by weaker momentum in summer package holiday bookings.
Underlying operating profit is expected to grow by 9-11%, in line with recently upgraded guidance. Net debt is set to “improve slightly” from last year’s €1.6bn level.
Bookings for the upcoming winter period are up 1%, helped by a return to growth in Germany. Average selling prices are trending 3% higher too.
Medium-term guidance has been reiterated, with TUI expecting to grow underlying operating profits by around 7-10% per year.
The shares rose 3.2% in early trading.
Our view
TUI’s full-year trading update showed it’s on track to hit its recently upgraded profit guidance. There had been jitters coming into the results, given some recent weak print from a major competitor. But TUI shrugged off these worries with continued momentum, and markets were also buoyed by early signs of a recovery in the key German market.
TUI operates a diverse travel business, owning an airline, cruise ships, hotels, and resorts, serving over 20 million customers across more than 180 destinations. Its lower-margin Markets and Airline segment acts as a customer acquisition tool, feeding guests into its other, more profitable divisions.
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 cruise ships to fill are enormous, so keeping occupancy rates high from here is key.
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 to paying dividends. We’re cautiously optimistic this will come alongside full-year results later this year, but no returns are guaranteed.
It hasn’t all been smooth sailing though. The conflict in the Middle East remains a headwind, understandably causing some hesitation among holidaymakers looking to visit surrounding regions. Early improvements in its key German market aren’t guaranteed to last, and a lot depends on the ongoing health of the broader economy.
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.
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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