Q3 financial results

TUI sells German brands as quarterly profits slump

TUI CEO Fritz Joussen has sold off two German tour operators.
TUI / Christian Wyrwa
TUI CEO Fritz Joussen has sold off two German tour operators.

TUI has sold two German specialist brands for €100 million to reduce dependence on the ‘volatile’ tour operator business as Q3 profits were hit hard by the B737 Max grounding.  

Europe’s leading tourism group has sold Berge & Meer and Boomerang Reisen, with combined turnover of €276 million, to Hamburg-based equity investor GENUI. Direct sales specialist Berge & Meer, which has revenues of “well over” €200 million, specialises in tours and cruises, often as white label products for other tour operators. Boomerang Reisen offers tailor-made long-haul trips to Oceania, Africa, and North/South America.

TUI Group CEO Fritz Joussen explained: “The transaction will sharpen TUI’s tour operator business and our position as a vertically integrated tourism group. Berge & Meer Touristik and Boomerang Reisen pursue different business models and have a different strategic alignment. Both therefore hardly generated any synergies with TUI's other business sectors.

“With the new owner, both companies will be better equipped to tap their full potential and thus have better growth opportunities. At the same time, TUI further reduces its dependence on the traditional tour operator business,” he continued. According to the company, the traditional tour operator business is characterized by volatility for the entire industry.

The disposals came just ahead of today’s results for the April – June 2019 quarter which showed a slight increase in revenue amid slow bookings in key source markets. Group turnover increased by 3.7% to €4.74 billion in the three months leading up to the peak summer season.  

But underlying operating profits (EBITA) plummeted by 46% to €100.9 million, including a €144 million hit resulting from the worldwide grounding of B737 Max planes following two fatal crashes. TUI, with 15 of these planes, had to spend out on alternative capacity instead, pushing up operating costs. Total costs related to the grounding could reach €300 million for the year as a whole.

Once again, the Holiday Experiences segment, comprising Hotels & Resorts, Cruises and Destination Experiences, was the main profit contributor, with quarterly underlying EBITA up by 16.7% to €208.3 million. Hotel profits were up by 26.4% to €91.5 million thanks to a high 80% average occupancy and higher average revenue per bed, driven partly by the shift in demand from the Western to the Eastern Mediterranean. The cruise business, now with 17 ships, improved underlying profits by 14.4% to €101.5 million.

In contrast, the Markets & Airlines segment saw flat revenues of €4 billion in the April – June period as customers held back their summer holiday bookings and slumped to a heavy operating loss of €104 million, due mostly to the Max capacity replacement costs and partly to over-capacity on flights to Spain.

The Central Region increased customer volumes by 4 % in Q3, “reflecting the solid recovery in German customer bookings” and strong growth in Poland, resulting in a 4.8% rise in turnover to just under €1.6 billion. Elsewhere, UK customer numbers were down by 1% during the quarter and Nordic volumes were 6% behind the same period last year.

Current summer bookings (as of August 4) have now improved to a 1% decline compared to a 3% fall in the first half-year, and average prices are up by 1%. TUI expects this positive trend to continue for the rest of the financial year as the year-on-year comparison with last year’s heatwave-affected summer lessens and demand for Spain normalises.

Commenting on the financial results, Joussen said: “Despite the challenging environment in 2019 to date, our underlying business remains robust, and we expect to deliver a solid performance in 2019, which, however, will not match the prior year’s result, as expected due to the grounding of the 737 MAX.”

Looking ahead, he continued: “We have significantly reduced our dependence on traditional tour operators over the past five years. The transformation of our Group will continue. The tour operator businesses in our European markets will be brought together faster and more effectively. We are consistently pursuing our digital transformation to develop TUI into a global platform organisation. The strength of our globally unified brand and direct access to our customer base, already comprising more than 21 million customers, offers great potential for the future.”