Typically news of surging losses at a company isn’t particularly welcomed by markets, but in the case of holidays firm TUI (TUI) its increased half-year loss isn’t all that bad.

The company’s share price was up more than 3% this morning before levelling off at 1% higher to 812p this afternoon, after reporting that net losses deepened to €287.2m versus last year’s €210.6m negative number.

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While TUI’s share price is up today, it has fallen 26% so far this calendar year.

Net losses for the three months through to 31 March increased to €175.1m compared a €142.3m a year ago.

The seasonal nature of travel operators business means that they often rack up losses during the winter period.

FAR FROM A DISASTER

The results are far from a disaster, notes AJ Bell investment director Russ Mould, as expectations have been very low for holiday companies in light of lower bookings across the sector due to people worrying how Brexit could impact their flights and therefore their finances.

In addition, its summer bookings are down only 3%, which compares favourably against competitors. Beach holidays specialist On The Beach (OTB) yesterday talked about booking across the sector being down 10%.

TUI’s average selling prices are also up 1%, and Mould adds, ‘That’s not good enough to cover its cost inflation, but it could have been a lot worse given the very difficult market backdrop.’

One encouraging area for the firm appears to be its hotels and cruises divisions, which are growing on a year-on-year basis.

BIG HIT BUT ENCOURAGING SIGNS

TUI says it continues to see good demand in these areas, but this could be offset by its Markets & Airlines division, which is struggling after the grounding of the company's Boeing 737 MAX aircraft. This model of plane has been grounded worldwide after two nearly new Boeing 737 MAX crashed within five months.

The firm has issued two profit warnings this year, blaming one of them on the €200m hit on its earnings it expects to take because of this issue. That figure will rise to €300m if 737 MAX flights don’t resume flying by the end of September.

It also warned on profit in February, lamenting overcapacity and the impact of a weaker pound on the purchasing power of UK holidaymakers.

Though the market is tough for TUI at the moment, Mould says its investment in cruises, hotels and experiences is helping differentiate the firm and bring customers in.

He adds: ‘TUI’s management are doing their best to reshape the business to thrive over the longer term. They just need to navigate what is likely to be a bumpy journey.’


Issue Date: 15 May 2019