Tui faces a hit of up to 26% on its annual profits if Boeing 737 Max 8 aircraft remain grounded across the summer peak flying season.
The European travel giant issued the profits warning today while admitted to “considerable uncertainty” around when the aircraft will be allowed to return to service.
Investigations are continuing into two fatal crashes involving 737 Max 8s by airlines in Indonesia and Ethiopia in under six months.
Tui faces additional costs from drafting in additional aircraft, using spare aircraft and extending the leases of others due to be replaced by 737 Maxs to ensure flights can be maintained.
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“Assuming 737 Max flight resumption latest by mid-July, the group currently expects to see a one-off impact on underlying EBITA [earnings] of approximately €200 million in connection with the 737 Max grounding,” Tui Group dislcosed.
“This impact is especially attributable to costs related to the replacement of aircraft, higher fuel costs, other disruption costs, and the anticipated impact on trading.
“As a result of this one-off impact, the executive board of Tui AG has decided today to update the guidance and now expects an underlying EBITA rebased for full year 2019 of approximately minus 17% – previously broadly flat – compared with full year 2018 of €1.177 billion.
“Should it not become clear within the coming weeks that flying the 737 Max will resume by mid-July, Tui will need to extend the abovementioned measures until the end of the summer season.
“The current assumption for this additional one-off impact until 30 September 2019 is up to €100 million.
“For this scenario the executive board of Tui has also decided today to update the guidance for the underlying EBITA rebased for full year 2019 to up to minus 26%.”
Tui’s fleet of around 150 aircraft currently includes 15 grounded 737 Maxs for the UK, Belgium, the Netherlands and Sweden.
A further eight 737 Max aircraft are scheduled for delivery by the end of May.
No dates have yet been announced for modifications of the existing aircraft model by the manufacturer, neither for approval of such modifications by the Federal Aviation Administration and the European Aviation Safety Agency.
“Therefore, Tui has taken precautions along with other airlines, covering the time until mid-July, in order to be prepared for the Easter, Whitsun and start of the summer holiday season and to secure holidays for its customers and their families,” the company added.
Nick Wyatt, head of travel and tourism research and analysis at data and analytics company GlobalData, said: “Tui’s 737 Max-related profit warning announcement feels like a watershed moment.
“It marks the first time that a company directly affected by the grounding has spoken publicly on the impact it expects the grounding to have and it doesn’t make for good reading.
“Tui had 15 of the affected aircraft in operation and the likes of Southwest Airlines, Air Canada, American Airlines, China Southern, and Norwegian all had more.
“Given this, Tui’s warning is unlikely to be the last and the impact for airlines that need to cover a greater number of grounded jets by both extending leases and taking out new ones will be even more acute.
“If flights resume in time for peak holiday season in July, Tui estimates the grounding will reduce profits by around 17% year-on-year, if the flight ban extends beyond that date, the impact will be closer to 25%.
“Tui has declined to say whether it is seeking compensation from Boeing, but if it does and that becomes a theme across all affected airlines, Boeing could end up with a very expensive bill.”
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