• TUI confident despite late bookings

TUI Travel said in a trading update that it was "on track" to meet its full year expectations, but warned that it was anticipating a slow recovery in trading to Egypt and Tunisia.

The announcement came as a respite from what has been a difficult year for TUI Travel. The group is now facing issues around forecasting as the trend towards last-minute booking is likely to grow as economic concerns build.

The company reported that total sales for the summer were up across its trading regions, led by central Europe with an 8% rise, followed by western Europe, up 7% and the northern region, which includes the UK, up 4%. The total number of customers was down by 1% on the year in the UK, but a 12% increase in the Nordic region compensated, leading to a total increase of 1%. In central and western Europe customer numbers were up 6%.

The late booking trend was highlighted by the bookings for winter 2011/2012, where total sales for the northern region were down 3% on the year (pulled down by a 7% drop in the UK), with sales down 1% in central Europe, but up 8% in western Europe, pushed up by a 41% rise in the Netherlands.

The fall in the UK was attributed to reduced capacity as a result of a change in aircraft fleet mix, including moving aircraft within the group to serve much higher demand in the Canadian and Nordic markets. This resulted in a 7% capacity reduction most of which has come out of Egypt and Tunisia and, the group said, as a result UK load factor was "broadly in line" with the prior year.

For summer 2012, TUI said that 10% of holidays had been sold to date, "broadly in line" with the previous year. Bookings were currently down 11%, partly reflecting a reduction in capacity, which the company expected to be down 4%.

Peter Long, CEO, said that the group's focus would remain on "differentiated product", which in summer 2011 saw sales up by 7%.

Following the announcement, Wyn Ellis, analyst at Numis, downgraded the stock to "hold" from "add" and cut his price target to 160p from 180p. He attributed the decision to concerns over rising fuel prices, Middle East and North Africa unrest and macro-economic issues.

"Today's update from TUI was reassuring with regards to short term trading, but we continue to believe that 2012 estimates look vulnerable," Ellis said.

 

HA Perspective: TUI's experiences with the Arab Spring have served to further illustrate the issues around the traditional package holiday model, where high fixed costs and a lack of flexibility to respond quickly as demand shifts is becoming ever more of a hindrance, particularly as the booking window shortens.

Its main rival, Thomas Cook, has even bigger problems and is currently divesting assets to shore up its balance sheet. But Thomas Cook has few owned hotel assets.

The bulk of TUI's hotel assets are held in TUI AG rather than the 55% owned travel company. If TUI AG does launch a full bid for the travel operations as many in the market expect, a significant hotel divestment programme may yet come. Given that TUI describes itself as the number one leisure hotelier in Europe with 261 properties this will offer potentially tempting targets.

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