Tui losses double as heatwave and weak pound take toll
Holiday giant Tui has reported underlying losses more than doubling to €83.6 million (£73.3 million) in its first quarter after an "unusually long and hot summer" across Northern Europe took its toll.
It had reported losses of €36.7 million (£32.2 million) a year earlier.
The company saw three main reasons for the drop: the extraordinarily hot weather in 2018, resulting in later bookings and weaker margins; a shift in demand from the Western to Eastern Mediterranean, which has created overcapacities in destinations such as the Canaries, resulting in lower margins; and continued weakness of the pound, making it difficult to improve margins on holidays sold to UK customers.
Emma-Lou Montgomery, associate director from Fidelity Personal Investing, said: “Brexit uncertainty, the weak pound and presumably hopes of a repeat of last year’s long, hot summer all mean holiday company TUI is struggling to get holidaymakers to book their fortnight in the sun.
“Holidaymakers are staying away from the Nordic region and the Canary Islands and worries that the winter season would be affected has now also crept into the summer season, with lower margins and flat sales showing signs that TUI isn’t going to get the break it needs any time soon.
“It’s pinning its hopes on cruises and holidaymakers being prepared to fork out extra for ‘experiences’ while away to keep the good ship TUI afloat.”
But there is a plan in place to turn things around.
"We are continuing to deliver our growth strategy, with a focus on product and investment in unique Holiday Experiences, together with the ongoing digitalisation and platforming of our business," the company said in a statement.
"We currently have 28 hotel openings, mainly in year-round destinations, and three cruise ship launches scheduled in FY19, and are on track with the integration of last year’s Destination Management and Musement acquisitions in Destination Experiences."
But that wasn’t all it had planned – with new avenues for growth being looked at.
"These acquisitions have significantly enhanced our geographic coverage and excursions and activities product offer, as well as providing a digitalised platform for future growth with the Musement platform now including content from Destination Experiences," the travel firm said.
"In addition, TUI UK retail are using Musement as their booking platform for excursions and activities."
In terms of real-world locations, the firm was looking a bit farther afield after the drop in European holidays.
"In terms of destinations, Turkey and North Africa continue to grow in popularity, with demand for Spain continuing to normalise," the firm said.
"In Cruises, the strong demand continues for TUI Cruises, Marella Cruises and Hapag-Lloyd Cruises, as we look forward to our ship launches in 2019 and beyond. Looking ahead, load factor and yield performance are in line with our expectations, and reflect the additional capacity coming to market."
On Brexit, the firm said the main concern remains whether its airlines will continue to have access to EU airspace.
"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," Tui said.
"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 chief executive Fritz Joussen said: "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."
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