TUI [LON:TUI] saw revenue more than double to €7.6bn in the fourth quarter, compared to last year when Covid restrictions dented performance. The higher revenue meant an underlying operating profit was €1.0bn, compared to a loss of €97m. All segments returned to profit in the quarter for the first time since the pandemic. For the year as a whole, underlying operating profit climbed to €0.4bn from a loss of €2.1bn.
Holiday Experiences, which includes the group’s hotels and resorts, and Cruises, saw underlying operating profit rise €368m to €433m for the quarter. The Markets & Airlines segment swung from a €138m loss to profit of €612m. TUI said the performance in Markets & Airlines reflected pent up travel demand and a return to a more normal travel environment. The number of passengers doubled compared to last year.
Net debt was €1.5bn lower at €3.4bn.
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Looking ahead, the group said “in Markets & Airlines we plan to operate a programme for Winter 2022/23 close to pre-pandemic levels. Bookings for the Winter season are at 134% against the prior Winter season and 84% of Winter 2018/19 levels”. TUI said it remains mindful of the uncertain economic conditions.
The shares fell 3.5% following the announcement.
“Tour operators are bracing themselves for a challenging winter. Our experts say that a significant proportion of winter holiday bookings are being postponed or even cancelled,” said Lara Martinez, hospitality and tourism sector analyst at Third Bridge. “Most of next summer’s bookings will be made between now and February. Our experts expect YoY growth but for overall demand to remain below pre-COVID levels.”
Martinez said that she felt TUI’s margins will be challenging over the next 12-18 months as they are forced to run more promotions and offer last-minute bookings to fill the empty seats. This means their average selling prices will gradually go down.
“TUI’s move towards a franchise model in the hotel segment can bring some upsides in financing but the potential margin is lower than the own investments model,” said Martinex.
Sophie Lund-Yates, Equity Analyst at Hargreaves Lansdown, was slightly more upbeat on the numbers. “TUI is back on track, as pent-up travel demand and a return to more normal travel patterns helped jet-fuel profits in the fourth quarter,” she commented. “The number of passengers in the core Markets & Airlines business doubled – with the per-seat margin benefit shining through in the numbers. Demand for winter bookings is also looking bright which means all-in-all, TUI is doing well.”
However, for all the progress, TUI management said it is mindful of the unforgiving economic uncertainty. A cost-of-living crisis means it’s almost impossible to map demand accurately.
“Sunny getaways are far from front of mind for much of TUI’s core demographic these days, and exactly what this will mean for the first quarter is yet to be seen,” said Lund-Yates. “Strikes from Border Force officials is another spanner in the works, with disruption on an operational and demand level highly likely in the coming weeks.”
