TUI saw revenue more than double to €7.6bn in the fourth quarter, compared to last year when Covid restrictions dented performance. The higher revenue meant underlying operating profit was €1.0bn, compared to a loss of €97m. All segments returned to profit in the quarter for the first time since the pandemic. For the year as a whole, underlying operating profit climbed to €0.4bn from a loss of €2.1bn.
Holiday Experiences, which includes the group's hotels and resorts, and Cruises, saw underlying operating profit rise €368m to €433m for the quarter. The Markets & Airlines segment swung from a €138m loss to profit of €612m. TUI said the performance in Markets & Airlines reflected pent up travel demand and a return to a more normal travel environment. The number of passengers doubled compared to last year.
Net debt was €1.5bn lower at €3.4bn.
Looking ahead, the group said ''in Markets & Airlines we plan to operate a programme for Winter 2022/23 close to pre-pandemic levels. Bookings for the Winter season are at 134% against the prior Winter season and 84% of Winter 2018/19 levels''. TUI remains mindful of the uncertain economic conditions.
The shares fell 3.5% following the announcement.
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Our view
TUI is doing well. Pent-up travel demand and a return to more normal travel patterns helped jet-fuel profits in the fourth quarter. The number of passengers in the core Markets & Airlines business doubled. Demand for winter bookings is also looking bright.
And of course, TUI doesn't just run flights, it has a much wider package holiday business. In some ways that's what makes TUI more defensive - it has more to offer and plenty of cross selling opportunities. But maintaining pre-pandemic levels is also a much higher priority, the drains on cash when you have planes and huge hotels to fill are enormous.
TUI Hotels & Resorts, as well as cruises are trading beyond pre-pandemic levels. This all sounds great, but we need proof of a longer run of positive momentum.
There are some challenges ahead.
TUI needs to work hard to maintain its competitive edge. Most holiday makers aren't too brand loyal and instead want the best deal. You could argue there's an increase in appetite for DIY rather than package holidays too, with today's Airbnb culture.
A cost-of-living crisis means it's almost impossible to map demand accurately. Sunny getaways are far from front of mind for much of TUI's core demographic these days, and exactly what this will mean for the first quarter is yet to be seen.
TUI was concerned about over-capacity in the wider industry before the pandemic. This is an ongoing concern in our opinion, despite the challenges faced by the sector in the last couple of years. TUI doesn't appear to be trimming its own capacity in readiness for an economic contraction and instead relies on a hybrid approach of own and third-party operated flights, which reduces, but doesn't eliminate the risk caused by an over-supplied and overly competitive industry.
TUI has also raised around €425m in May 2022, by placing new shares, as it looks to reduce debt and government funding. But there's still credit risk which won't be extinguished until operations have been back up and running at full speed for some time.
TUI faces challenges. There's the potential for TUI to do well in the future thanks to its more diverse offering, but we think further turbulence is likely for now.
TUI key facts
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