Shares in tour operator TUI (TUI) dropped almost 6% to 345p after it reported a whopping 98% drop in group revenues during the third quarter between April and June, while analysts have voiced concerns about a deal with the German government.

In its quarterly statement 1 October 2019 to 30 June 2020, the travel company said group revenue of €75 million during its third quarter reflected its business being at a ‘standstill’ for most of the period.

Hotel occupancy stood at 23%, while the company also reported an EBIT loss of €1.1 billion, with fixed costs reduced to around €237 million per month as the business moved into ‘crisis mode’.

But it added that since lockdown restrictions had eased, signs of customer demand were ‘encouraging’, while it has seen a sharp increase in bookings for 2021 as customers make their holiday plans for next year.

The Anglo-German company also said it had agreed a second loan package with the German state-owned development bank KfW worth €1.2 billion, which would give it a total cash flow of €2.4 billion.


However, this deal was not welcomed by analysts with Berenberg in particular against it.

Berenberg analysts called it an ‘unattractive’ deal for shareholders and said it has done ‘nothing to ease our concerns’ over the business, with net debt standing at around €5 billion.

The analysts added, ‘TUI is carrying too much debt and this needs to be remedied. The new deal magnifies the capital structure issues not resolve them, while adding to the interest burden.

‘We have long argued that absent its dividend stream from its joint ventures, TUI's cash flow is incredibly weak, and with these dividends likely to be constrained or absent for many years, the cash flow, even if the good times return, may not be enough to service the debt.

‘Further, the conversion price for the convertible portion has been set at a discount to the current share price to ensure that shareholder approval was avoided, and while we understand the urgency, we question whether this circumvention is in the interests of shareholders.’

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Issue Date: 13 Aug 2020