TUI’s third-quarter revenue was up 7% to €6.2bn, beating estimates, supported by increased volumes and higher prices.
Underlying operating profit rose by 38% to €321mn (€268mn expected), driven by strong performances in the Holiday Experiences and Cruises segments.
Underlying free cash outflow for the first nine months was €0.2bn. Net debt improved by €0.2bn to €1.9bn.
Bookings for the key summer period are down 2%. However, early indicators for winter bookings are showing positive momentum.
Full year revenue growth is expected at the lower end of the 5-10% range, but underlying operating profit guidance has been raised from 7-10% to 9-11%.
The shares were up 2.2% in early trading.
Our view
TUI delivered a decent third quarter, and markets reacted well to the raised profit guidance as the smaller (but higher margin) hotel and cruise businesses are looking strong. We would flag that quarterly results tend to be lumpy, and there was an added benefit from Easter shifting into the third quarter this year.
TUI operates a diverse travel business, owning an airline, cruise ships, hotels, and resorts, serving 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 cruise ships to fill are enormous, so occupancy rates improving across the business is encouraging.
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.
Despite improving trends, the core tour and airline operations are still under a bit of pressure, though, with summer bookings showing some softness. This division makes up c.85% of revenue but has failed to generate a profit over the first 9 months.
That’s in part due to troubles in the Middle East, but also a tough competitive landscape, and we do have some questions on long-haul demand, where TUI has an edge.
But there have also been some additional costs this year due to ongoing changes to the offering, which are expected to fade next year. That should help margins from this division get closer to the 3% target level, driving improved profitability as we move into 2026.
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 expect a decision to come alongside full-year results later this year, but no returns are guaranteed.
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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