Travel operator TUI (TUI) is struggling with market turbulence as earnings before interest, tax and amortisation (EBITA) dived 18% to €193.4m in the third quarter to 30 June.

Despite reiterating guidance for annual EBITA growth of at least 10%, shares in TUI have slumped 9.1% to £14.38. The market perhaps focusing on the fact this growth pledge strips out the impact of some fairly significant currency headwinds.

People have been soaking up the unseasonably hot summer, which is bad for the travel operator as it is unlikely to outperform over its peak period despite a high level of early bookings.

TUI says the rate of sales have slowed over the last few months as Brits enjoyed the World Cup and chose staycations instead of flying overseas to enjoy the warmer weather in the UK.

AJ Bell investment director Russ Mould says the third quarter update is a mixed bag as package holidays have come under pressure, while TUI’s cruises and hotels divisions are faring well.

Sales in hotels and resorts have jumped 6.4% to €161m, while revenue in the cruises division enjoyed a 6.1% rise to €227.3m.

This is encouraging as these businesses tend to generate higher margins than package holidays.

Mould believes Thomas Cook (TCG) warning its performance will be at the lower end of market expectations is weighing on sentiment towards TUI and undermining the credibility of its pledge to deliver 10% EBITA growth.

Shore Capital analyst Greg Johnson is confident TUI can hit 11% growth in underlying EBITA, but factors in a €35m drag from volatile currency movements, up from €10m.

Johnson has cut his EBITA forecasts by €25m to €1.11bn.

Issue Date: 09 Aug 2018