TUI AG (TUI1) ORD REG SHS NPV

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TUI is set to report full-year revenue of €24.2bn, up 4.4% at constant currency, coming in slightly below its 5-10% guidance range. Both of the group’s business segments contributed positively to the growth.

Underlying operating profit rose 12.6% to €1.5bn, exceeding its 9–11% growth guidance. Performance was driven by record results in Hotels & Resorts and Cruises.

Further details alongside a new shareholder return strategy will be given at full-year results on 10 December.

The shares were up 3.4% at the time of the announcement.

Our view

TUI managed to beat full-year profit expectations, despite some weakness on the top line. Record performances across its Hotels & Resorts and Cruise businesses highlight the impact recent changes are having to improve profitability, and markets were buoyed by chatter of a new shareholder returns strategy to be announced at full-year results. But with economic headwinds building in its main end markets, it’s the 2026 outlook that we’ll be most focussed on.

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.

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. A lot depends on the ongoing health of the broader economy.

Debt levels have been a concern in the past, but are now at a level we’re comfortable with. Management has hinted at this too, and a new shareholder return programme is on the cards. Markets are expecting a return of dividend payments in the new year, with a forward dividend yield of 2.9% currently forecast. But as always, no shareholder returns are guaranteed.

TUI’s diverse offering and attractive valuation makes it one of our preferred names in the sector. Continued strengthening of the balance sheet and progress in Germany will be key to sentiment. But with some questions over near-term demand and the cyclical nature of the industry, it 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.

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.

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