Slow bookings and lower margins for summer 2019 holidays, notably in the UK, have forced TUI to scale back its profit outlook for this year.
Europe’s biggest tourism group announced late yesterday that it now expects full-year profits (underlying EBITA) to be “broadly stable” at about last year’s record level of €1,177 million and was thus “not reiterating” its previous guidance of at least a 10% improvement in 2019 and 2020.
TUI explained that with 34% of its summer 2019 programme booked to date “bookings are broadly in line with prior year, however, margins are not.” There are three main trading headwinds at present, including “a continuing negative impact from the extraordinary hot weather in 2018”, resulting in later bookings and weaker margins for its Markets (tour operators) & Airlines business.
In addition, “there is a shift in demand from the Western to Eastern Mediterranean, which has created overcapacities in certain destinations such as the Canaries, resulting in lower margins for Markets & Airlines”. Thirdly, the continued weakness of the Pound Sterling is “making it difficult to improve margins on holidays sold to UK customers”.
TUI had expected these factors to impact mostly sales for the current winter season but, based on its latest figures, “we are seeing from current bookings an additional impact on H2 (Summer) and have updated our guidance accordingly”.
In response, the German-based group said that it is taking “specific measures”, including harmonisation under one leadership to drive cost savings and efficiencies; reducing distribution costs by shifting to more direct, more online, more mobile sales; and increasing upselling of activities & excursions to drive revenue and margin benefits.
However, TUI also pointed out: “We also expect that the continued sector headwinds may trigger market consolidation, and that TUI could be a beneficiary of this.” This implies that the group believes it would gain business if rival tour operators or airlines go out of business.
Despite the current business trends, TUI underlined that overall leisure travel demand is continuing to grow in its core markets, and the group is transforming itself into “an integrated provider of holiday experiences”, based on its portfolio of hotels, cruises and destination activities & excursions portfolio which generated 70% of group profits last year. It also plans to enter into new markets generating €1 billion of revenue from 1 million customers by 2022.
TUI will release more detailed figures as part of its Q1 results on Tuesday, 12 February.