TUI cuts summer 2009 capacity due to fears over the economy

TUI Travel is reducing summer 2009 capacity by 15% in the wake of the worsening economy.

Speaking as the vertically-integrated operator released its interim management statement and results for the third quarter and nine months ending June 30, TUI Travel chief executive Peter Long said consumers still treat a holiday as a high priority with demand continuing to hold up.

However, with news about the economy  becoming increasingly gloomy, preparations are being made with the capacity cuts as TUI Travel seeks to become more flexible and able to respond to consumer demand.

Long said: “While the evidence to date suggests that consumers view holiday spending as a high priority, we continue to prepare the business to deal with any consequences of the current economic climate.

“Accordingly, we are taking out capacity for the coming seasons where it makes sense to do so and retain significant flexibility to adjust supply further if demand trends change.

“The diversity of our portfolio of businesses provides further protection from risks arising from specific geographies or products. Next year will also see substantial merger synergy benefits delivered, based on work we have already completed.”

Long added the group continues to hedge fuel heavily with summer 2008 99% accounted for, winter 2008/09 90% accounted for and summer 2009 88% hedged.

However, he added the rising cost of fuel has already had an impact on summer 2009 with short haul fuel costs up £11 per passenger, a 3% increase on 2008, medium haul up 4.2% or £20 while long haul fuel costs have risen by £59, 5.9% up on summer 2008. The average increase is £16, a total of 3.3%.

Currency hedging has also remained strong with the amount of euros hedged for 97% this summer, 96% for winter 2008/09 and 90% for next summer.

As much as 97% of TUI’s dollar needs have been hedged for this summer with the same proportion for winter 2008/09 and 94% for summer 2009.

Opinion: Travel in the changing economy

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