Lufthansa is showing interest in Thomas Cook Airlines but TUI is staying on the sidelines amidst tough trading conditions for Europe’s top tourism groups.
The decision of Thomas Cook Group to launch a ‘strategic review’ of its airline business has quickly prompted speculation about potential buyers, and whether the airlines might be sold as a whole or individually. Another factor is the uncertainty surrounding EU flying rights for British-owned airlines after Brexit on March 29, 2019. Thomas Cook Group Airlines consists of Germany’s Condor and the ‘Thomas Cook’-branded airlines in the UK, Scandinavia and Balearics.
Thomas Cook Group Airlines chief Christoph Debus told fvw that the British tourism group wanted the strategic review to be an ‘open process’ and said it could last up to 12 months. He said that a strategic investor could develop the airline business better than Cook and stressed that the UK-based group “wants to achieve a fair sale price”.
Cook would get the highest price by selling the airline business, with its 103 planes and 20 million annual passengers, as one single entity. But both Debus and Thomas Cook CEO Peter Fankhauser have said that a partial sale is also an option. Either way, the group wants to continue cooperating closely with the airlines in future. “We will retain our commercial agreements with the airline in every imaginable scenario,” Fankhauser told analysts last week.
Analysts quickly pointed to Lufthansa, which owned Condor until 2009, as an obvious potential buyer. A takeover of the German leisure airline would give Europe’s largest aviation group a strong network of routes to holiday destinations in the Mediterranean and overseas, in addition to Eurowings’ budget flights to business and leisure destinations.
Lufthansa board member Harry Hohmeister told business newspaper Handelsblatt: “With Eurowings we have proven that we can grow well in this segment, so we will look carefully at which options there may be here.”
In contrast, Europe’s largest tourism group TUI is playing down any interest in Thomas Cook Airlines, although not ruling out an offer completely. CEO Fritz Joussen told the company’s AGM yesterday that TUI is “an active observer on the sidelines” as far as European airline consolidation is concerned. He stressed that the German group would retain its own airlines as an integrated part of its business.
Joussen also played down the impact of any no-deal Brexit on the German-based but UK-listed group, which has a minority of EU shareholders, and its different airlines. About 30% of TUI’s shareholders are British while Russian billionaire Alexey Mordashov owns a 24.9% stake. The TUI boss said the UK and the EU have already agreed to maintain flights at 2018 levels this year if a no-deal Brexit takes place and described fears about flights from the UK to destinations such as Spain, Greece and Portugal as a “phantom debate”.
Meanwhile, after downscaling its 2018/19 profit outlook last week, TUI yesterday released its results for the October – December 2018 first quarter, showing low revenue growth and a higher seasonal loss, along with flat booking figures for summer 2019. The company increased quarterly turnover by 4.4% to €3.7 billion while the underlying operating loss (Ebita) broadened to €83.6 million from €36.7 million in the same period last year.
The main factors were a low 1.2% rise in customer numbers, the continuing effect of last year’s hot summer on demand, flight over-capacity, a customer switch towards Turkey and North Africa, lower margins and the ongoing weakness of the British pound.
On current trading for summer 2019, TUI Group said bookings are broadly in line with the prior year while the average selling price is flat year-on-year. The business trends seen in the first quarter are expected to continue in the coming months, resulting in later bookings and lower margins for its tour operators and airlines, along with overcapacity in destinations such as the Canary Islands.