TUI profit up 57% but orders slump

Published on Wednesday 12 August 2009 21:28

COLD recessionary winds are blowing through TUI Travel's winter bookings after a sharp decline in orders overshadowed yesterday's third-quarter profit.

The firm – created two years ago from the tie-up of Germany's TUI travel division and the UK's First Choice – said UK bookings for the winter 2009-10 season were down 21 per cent on the previous year.

The shares fell by nearly 3 per cent yesterday as investors expressed their disappointment at news of falling winters sales.

The group – which also owns the Thomson brand – said it had cut the amount of winter holidays on sale by 15 per cent to adjust to falling demand.

TUI said it had taken a cautious approach to the season as winter holidays can be more discretionary because they are often second holidays following a main summer trip.

Chief executive Peter Long said: "We anticipate market conditions will remain challenging and expect the later booking pattern to continue in the next financial year."

However, the firm added that the trend had improved in the past four weeks, with winter bookings only down 6 per cent.

Deutsche Bank analyst Simon Champion said: "The surprise in the statement is weakness in winter 2009 trading in the UK activities.

"This is an early stage for the period but, nevertheless, may put some pressure on underlying margins."

For the three months to the end of June, TUI posted a 57 per cent jump in operating profit to 102 million, which was at the upper end of analysts' forecasts.

Revenue slipped by 1 per cent to 3.6 billion, but TUI said it was well placed to meet expectations for its current financial year, which ends next month.

Consensus forecasts indicate that TUI should make a full-year operating profit of 425m.

TUI said it delivered 28m of "synergy benefit" in the third quarter and was on track to deliver 115m of savings this year. The summer 2009 season was in line with TUI's hopes, while summer 2010 had started positively in the UK.

Both TUI and rival Thomas Cook have reduced the number of holidays they sell by more than a quarter in the past two years, allowing them to raise prices and avoid having to offer heavy discounts to fill empty slots.

This has helped them to increase profits while smaller operators have struggled. XL Leisure, which had been the UK's third-largest travel firm, fell into administration last year.

The performance of Europe's two biggest tour companies has proved to be more resilient than the bigger hotel operators, which are more heavily reliant on corporate trade.

On Tuesday, Inter-Continental Hotels, the world's largest hotel chain, said a recovery for the hotel industry might be two years away.

Shares in TUI closed down 2.9 per cent or 7.3p last night at 244.8p, while rival Thomas Cook – which is due to report today – slid 2.5 per cent or 6p to 230p.