Shares in the Anglo-German business nudged modestly higher (1% approximately) to 817.8p after the company stuck to its previous full year guidance despite plunging third quarter profits.
That implies a 26% drop in earnings before interest, taxes and amortization (EBITA) for the full year to 30 September 2019.
That might look bleak but it does include an anticipated €300m hit TUI will take on the chin in the wake of fleet problems, where it had to ground its Boeing 737 MAX planes.
Strip that out and EBITA will likely be flat the company said today, not great but nowhere near as bad as it might have been given the slump in Brits going abroad due to the plunging pound and ongoing intense competiton.
The firm did report an encouraging 2.5% rise in revenue in the third quarter to €4.745bn, though the 737 MAX grounding led to a 58.2% drop in pre-tax profits to €58.9m.
SQUEEZED FROM ALL SIDES
TUI faces ongoing Brexit uncertainty, which has led an increasing number of customers to delay booking holidays, and weaker demand in its core European markets.
In particular, the firm highlighted ‘overcapacity’ to Spanish destinations, which has resulted in ‘increased competition, putting pressure on margins’ in its Markets & Airlines division.
In other words, more travel firms than just TUI and Thomas Cook are now giving Brits their package holidays to places like Benidorm and the Costa del Sol, offering them at a cheaper price.
The company’s summer programme, the peak time of year for firms like TUI, is 87% sold, a 1% drop compared to last year but an improvement on the 3% fall in bookings compared to last year from its second quarter update in May.
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One of the areas it is looking to grow the most, its holiday experiences division, slightly disappointed analysts with lower than expected growth, but still reported a decent 16.7% increase in revenue to €208.3m for the third quarter.
The division offers experience-driven getaways such as engaging in eco-archaeology in Cancun or sledding a husky trail in Cancun, and has evidently chimed with holidaymakers.
Net debt, particularly after Thomas Cook’s woes, has continued to weigh on investors’ minds, with TUI reporting net debt of €994.6m in the nine months to 30 June, compared to being €598.4m in the black last year.
However, this figure was expected and reflects lower profits as well as TUI’s investment into improving its fleet of aircraft. The firm has stressed it is still in a ‘robust financial position’ and, unlike Thomas Cook, it does have more than enough cash to see it through the quiet winter period.