Shares in tour operator TUI (TUI) were flat at 271p despite summer bookings in its Markets & Airlines business plunging 83% as the coronavirus pandemic continues to hurt travel markets.

Summer is the most crucial trading period for travel companies as they look to offset the losses made in the quieter winter months.

While the shares have barely moved on today's news, they are down significantly over recent days having started last week around the 350p mark.

In a pre-close update, TUI said Markets & Airlines had restarted operations from mid-June and since then had carried 1.4 million customers on holiday, achieving an average load factor of 84% based on adjusted capacity.

SUMMER SLUMP

It added that summer bookings equated to 15% sold of its original programme, reflecting the impact of cancellations from mid-March, versus 97% sold at the same point last year.

Using its adjusted capacity plans, it was 82% sold to date, influenced by the current later booking trend.

The winter 2020-21 programme, meanwhile, had been further reduced by around 20% since the company's third-quarter update to about 40% adjusted capacity, reflecting the current uncertainty relating to travel restrictions.

The firm said it had been ‘impacted by continuous changes in travel advice by various governments across our markets’ over the last month, meaning it has had to cut capacity and the number of destinations it serves.

As of 20 September, TUI said it had cash and available facilities – including further support from the German government – of €2 billion, down from €2.4 billion on 12 August, with the company having agreed with the Competitions & Markets Authority to pay out all refunds it owes to customers by the end of September.

It also confirmed it would lay off up to 8,000 staff in order to reduce its annual overhead costs by 30%, adding to the number of people losing their jobs.

‘REMARKABLY UPBEAT GIVEN THE CIRCUMSTANCES’

Having talked about people enjoying their holidays and being in a strong position to prosper once travel volumes start to recover, AJ Bell investment director Russ Mould called TUI’s update ‘remarkably upbeat given the circumstances.’

Mould said, ‘Despite this optimism, TUI has seen a decline in booking volumes, holiday prices, holiday capacity and a shift in consumer trends whereby many people are waiting until the last minute to book which clouds earnings visibility.

‘The fact that governments keep changing travel advice is not helping matters, but the pandemic is a fluid situation and companies like TUI will simply need to keep on their toes and be ready to either seize opportunities to sell more holidays if conditions permit, or hunker down and go into survival mode if conditions worsen.’

He added that TUI’s summer 2021 bookings are a mixture of pent-up demand to get some sun and people shifting their 2020 bookings back a year, and that if the UK was to experience another national lockdown then TUI could see a ‘dramatic reduction’ in summer 2021 bookings but potentially a surge once lockdown conditions ease again.

Mould said, ‘There is pressure on cash management in the business with TUI having to balance outgoings such as running costs and customer refunds with money coming in from new bookings. The current rise in coronavirus cases in the UK and many parts of Europe would suggest net cash outflow is going to increase.’

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Issue Date: 22 Sep 2020