Boeing 737 Max grounding forces Tui to find alternative aircraft for 2020

Tui has been forced to secure alternative aircraft for the whole of 2020 due to the continued grounding of the Boeing 737 Max.

The disclosure came as Europe’s largest travel group revealed that costs of €45 million were incurred in replacement costs for 737 Max in the three months to December.

However, the group said it had been able to narrow the range of the additional costs for a full-year grounding of the 737 Max from €220 million–€270 million to €220 million–€245 million.

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Tui expects to be able to partly offset the financial impact based on current strong trading – with the UK delivering a record turn-of-year booking performance following the collapse of Thomas Cook.

Boeing admitted last month that the earliest the aircraft is likely to be certified by aviation regulators to return to service would be during mid-2020.

The 737 Max has been grounded for almost a year  following two crashes in Indonesia and Ethiopia which killed a total of 346 people.

Tui had previously planned for an April return to service for the troubled 737 Max, having already take a €130 million hit from the unavailability of the aircraft since March last year.

“In light of the recent official release from Boeing, we instead now have secured replacement capacity for the entire full year 2020,” the travel group revealed today.

Tui updated its full-year profit guidance for the 12 months to between €850 million to €1.05 billion, including an unspecified “certain level of compensation” from Boeing.

Tui also expects “mid to high double-digit millions” investment in digital platform growth in the current 12 months as part of its ongoing transformation strategy towards becoming a more digital tourism platform.

The company said: “In terms of booking trends [the 2020 financial year] has started exceptionally well, with the UK delivering its best bookings volume month in the company’s history.

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“We are pleased with customer booking development to date, however the Boeing 737 Max grounding continues to weigh on our operational performance, with an extended grounding now expected for the rest of the financial year.”

Tui added: “Post the insolvency of a key competitor, we have seen a clear uplift in bookings in the first quarter as many customers turned to Tui to rebook their holidays, particularly in the UK.

“We have subsequently added new capacity to both our winter 2019/20 and summer 2020 programme to accommodate the increased volume.”

In the UK, customer numbers grew 3% in the quarter ending December 31, “well ahead of winter capacity increases, helped by the insolvency of one of our key competitors”.

The grounding of the 737 Max aircraft incurred costs of €16 million for the UK in the quarter.

Overall group losses for the traditionally weaker winter three months increased year-on-year to €147 million from €83.1 million.

Turning to Brexit, Tui’s main concern “remains whether our airlines will continue to have full access to EU airspace after the transition period”.

The group added: “We are continuing to address the importance of there being a special and comprehensive agreement for aviation between the EU and the UK post-Brexit to protect consumer choice with the relevant UK and EU decision makers.

“We follow the political negotiations closely and continue to develop scenarios and mitigation strategies for various outcomes, including the potential exit of the UK from the EU on 31 December 2020 without a comprehensive free trade agreement, with a focus to alleviating potential impacts from Brexit for the group.”

The group plans to open 17 hotels this year, including a number for the Riu and Robinson brands.

Tui last week announced the €1.2 billion acquisition of Hapag-Lloyd Cruises by Tui Cruises, its joint venture partnership with Royal Caribbean.

“The transaction will create a solid financial base with which to facilitate and accelerate the international growth of Hapag-Lloyd Cruises, delivering increased profitability and synergies in the mid-term, Tui said.

“We expect the transaction to generate net cash consideration of approximately €700 million.”

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