Full-year adjusted operating profit is expected to land between €1.2-1.3bn, ignoring exchange rates. Revenue guidance remains suspended.
Late summer demand improved, but Markets + Airline booked revenue remained 5% behind last year, in line with a 5% reduction in TUI’s own-risk capacity.
Hotels and cruises performed better. Hotel rates rose 4%, and cruise capacity increased 12% and rates were 2% higher.
Winter trading in Markets + Airline has started slowly, with booked revenue down 7%. That includes declines of 9% in the UK and 4% in Germany, although recent booking momentum has improved.
The shares were broadly flat in early trading.
Our view
TUI’s late-summer performance improved, helping the group narrow its full-year operating profit guidance to around the previous midpoint. Markets + Airline remains more exposed to weaker demand than its hotels and cruise operations, but recent booking momentum has picked up and disciplined capacity management is helping to protect pricing. Winter has started slowly, though, and a continued shift towards later bookings means that visibility remains limited.
The tighter guidance range removes some of the downside uncertainty that followed April’s profit warning. The midpoint is broadly in line with analyst forecasts, so we don’t expect much movement in consensus following the update.
TUI operates a diverse travel business spanning airlines, cruise ships, hotels and resorts, serving more than 20 million customers across more than 180 destinations. Its lower-margin Markets and Airline segment serves as a customer-acquisition tool, funnelling guests into its other, more profitable divisions.
SunDeals is TUI’s new standalone budget brand, aimed at value-conscious travellers who might otherwise piece together cheaper flights and hotels through online travel agents and low-cost airlines. This brand should allow TUI to target a broader customer base while protecting the core brand’s more premium positioning. But this is a fiercely competitive market, so delivery will be key.
We’ve been impressed with TUI’s progress in recent years. Digital investments have helped drive higher sales, and balance sheet health and the mix of the business have improved.
The group has also made a conscious effort to balance guaranteed capacity, which carries financial risk if left unsold, with more flexible options. That discipline is helping protect pricing during a more challenging period, with TUI reducing flights and package holidays to match weaker demand.
Later booking patterns are also making cash flow less predictable, with more cash arriving closer to departure. The balance sheet is in decent shape, but lower levels of fuel hedging leave TUI more exposed to changes in jet fuel prices heading into next year.
TUI is doing what it can to navigate a difficult backdrop, from managing capacity more flexibly to protecting pricing where possible. The valuation – at a mid-single-digit earnings multiple, and a respectable, albeit variable, dividend yield – look tempting on a longer-term view. But winter demand remains uncertain, and geopolitical instability continues to add more unpredictability than usual.
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
All ratios are sourced from LSEG Datastream, based on previous day’s closing values. Please remember that yields are variable and not a reliable indicator of future income. Keep in mind that 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 LSEG. 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.