Tui Group today reported a doubling in first quarter losses to €83.6 million after a record year in 2018.
Europe’s largest travel conglomerate blamed the knock-on from the “unusually long and hot summer” in northern Europe for the decline in the three months to December 31 from a loss of €36.7 million in the same period the previous year.
Tui’s markets and airlines segment suffered an increase in seasonal losses to €177.7 million from €140.8 million year-on-year, described as “customary in the tour operating business”.
Underlying profits in hotels and resorts was down 25.2% year-on-year from €91.9 million to €68.7 million.
Tui’s cruise division saw earnings rise by more than a quarter in the period to €47 million ahead of Marella Cruises’ fleet in the UK being complemented by Marella Explorer 2 in summer 2019.
The growing destination experiences division losses were down to €4.7 million from €3.5 million.
Strong bookings to Turkey and North Africa caused overcapacity in other destinations such as the Canary Islands, which went hand in hand with lower margins in the tour operating business.
At the same time, the pound remained weak as a result of Brexit.
Losses at Tui’s northern region which incudes the UK and Ireland widened by 119% million to €91.1 million in the three months although customer numbers remained almost static at 1.2 million.
“In the UK, although customer numbers were broadly in line with prior year, trading margin performance was significantly lower due to the factors outlined above,” the group said.
The main concern about Brexit “remains whether our airlines will continue to have access to EU airspace,” Tui admitted.
“We are continuing to address the importance of there being a special agreement for aviation to protect consumer choice with the relevant UK and EU ministers and officials, and are in regular exchange with relevant regulatory authorities.”
“We continue to develop scenarios and mitigating strategies for various outcomes, including a ‘hard Brexit’, depending on the political negotiations, with a focus to alleviate potential impacts from Brexit for the group.”
Tui last week warned that it would not hit its previous pledge for growth of 10% in the three years to 2020, sending its shares tumbling by 19%.
The group today confimed adjusted guidance for the 2019 full year with underlying earnings expected to be “broadly stable” compared with the previous 12 months.
Tui admitted that “sector challenges” continue, particularly in the traditional tour operating business, while cruises and destination experiences continued a strong performance.
CEO Fritz Joussen stessed: “Global trends for tourism remain intact.
“Tui is financially strong with a sound strategic and operational positioning. We are continuing to deliver our transformation as a digital platform company.“
Describing the first quarter of the financial year as “being in line with expectations”, Tui reported turnover up by 4.4% to €3.7 billion and customers numbers rising by 1.2% to 3.7 million.
Traditional tour operators and airlines tend to be more vulnerable to external factors, the company added.
Tui described current trading as “broadly in line with” the same time last year with average selling prices flat year-on-year.
“However, this does not apply to margins. The market environment for all tour operators remains challenging, as they are simultaneously impacted by several factors,” Tui said.
It highlighted sales of higher-margin holidays to British customers as being adversely affected by the weakness of the pound.
The impact of the hot summer 2018 resulted in an increase in the number of late bookings and lower margins.
A shift in demand from the western to the eastern Mediterranean, created over capacity in other destinations such as the Canary Islands and going hand in hand with lower margins.
“The group had previously expected these market challenges to primarily affect the first half (winter) of the financial year.
“From today’s perspective, however, Tui expects to see additional impacts in the second half of the year (summer) and therefore adjusted earnings guidance for the full year on February 6.
“Having previously expected an increase in underlying EBITA of at least 10% on a constant currency basis, Tui now expects its full-year earnings to come in broadly stable versus its record performance delivered in 2018 on a constant currency basis of €1.177 billion.
Joussen added: “Travel and tourism remain a growth market. Customers continue to travel, but they are currently resistant to increases in price.
“During this consolidation phase in our sector, it is particularly important to adequately participate in market growth.
“Tui has a good strategic and operational positioning, and the transformation of the group as a digital platform company is progressing.
“We have paved the way with our investments in hotels and ships, our IT and digital strategy and the acquisition of the Italian digital platform Musement in 2018.”
Senior market analyst Fiona Cincotta at Cityindex said: “Tui has sketched in the details of last week’s shock profit warning and the overall picture remains a dull one, with a few bright spots.
“The cruises division has performed well, posting solid earnings growth, while the hotels unit was still profitable albeit not as profitable as a year earlier.
“Markets and airlines is clearly a problem for Tui and the overall outlook for the company remains relatively bleak.
“Yesterday’s weak GDP update really hit home how much Brexit uncertainty is hurting consumer confidence and travel companies must be feeling the pinch.
“The weaker pound has made a non-essential holiday that little bit more expensive for Brits already spooked by the cloudy economic outlook — and the situation could get worse if the UK crashes out of the EU without a deal.
“Tui remains a better-diversified business than Thomas Cook and its balance sheet is still in better shape than its British rival’s.
“To be sure, Tui is now carrying more than twice as much net debt than it was a year ago. Investors won’t necessarily want to stomach a big acquisition, including a move on Thomas Cook’s airline business.”
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