TUI AG (TUI1) ORD REG SHS NPV

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TUI’s full-year revenue grew by 4.4% to €24.2bn, ignoring exchange rate impacts. Performance was helped by a 5.0% uplift in customer volumes

Underlying operating profit rose by 12.6% to a record €1.5bn. All divisions recorded double-digit growth except its Markets & Airline unit, which was negatively impacted by strong competition and significant investments.

Underlying free cash flow improved by €0.1bn to €0.5bn. Net debt fell from €1.6bn to €1.3bn, helped by the improved profitability.

In 2026, revenue is expected to grow by 2-4%, with underlying operating profit is expected to grow at a faster pace of 7-10%. The midpoint of both figures fell a touch short of market expectations.

TUI announced the return of dividends, with €0.10 per share declared in respect of 2025. Going forward, the group plans to pay out 10-20% of underlying earnings.

The shares fell 1.6% in early trading.

Our view

TUI delivered record profits in 2025 driven by its Hotels & Resorts and Cruise businesses, giving management the confidence to reinstate dividend payments. Airline bookings for the upcoming summer are running well ahead of the prior year, but slightly conservative guidance for the new year caused a poor market reaction on the day.

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. Stiff competition and heavy investments in this segment have been a drag on profitability of late. But we expect that to change in the near term as recent investments bear fruit.

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. Alongside operational improvements, that’s helping profits outpace revenue growth.

It hasn’t all been smooth sailing though. One of its key markets (Germany) has been relatively weak in recent times. There are early signs of improvement here, but they aren’t guaranteed to last. A lot depends on the ongoing health of the broader economy.

Good progress has been made in reducing debt levels to a comfortable place. That’s given management the confidence to reinstate dividend payments, with a prospective 3.1% dividend yield on offer. But as always, no shareholder returns are guaranteed.

TUI’s diverse offering and attractive valuation make 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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