News Column

UPDATE: TUI Travel Dreams Of The Caribbean Ahead Of Merger

August 8, 2014

Rowena Harris-Doughty

LONDON (Alliance News) - TUI Travel PLC Friday said strong and growing demand for its "unique" all-inclusive package holidays and long-haul destinations drove an increase in its operating profit in the third quarter of its financial year, and said in particular the Caribbean is a key growth opportunity for the group going forward.

The travel operator, which owns Thomson and First Choice, is in the process of merging with its German parent TUI AG. In June, TUI AG said it planned to buy the minority of UK-based holiday operator TUI Travel that it does not already own in a deal worth about GBP2 billion, a move that ends years of speculation that TUI would eventually take full control of its UK-listed travel unit. In a statement last month, TUI Travel said the merger discussions have been extended to September 19.

TUI's major source markets are the UK and Germany. It said it continues to see strong trading in the UK and Germany, and stronger demand for its unique holidays, which are holidays available exclusively via TUI, and for bookings taken online.

The travel group made an underlying operating profit of GBP112 million in the three months to June 30, up from GBP76 million a year earlier, helped by a GBP23 million boost from a later timing of Easter in 2014. On a like-for-like basis, which excludes the timing impact of Easter and foreign-exchange movements, underlying profit increased by GBP16 million, or 21%, to GBP92 million.

The underlying results exclude items such as acquisition-related expenses, goodwill impairments and taxation of its joint ventures.

"What is fundamental driving the business and growth, is the improved margins we've seen in unique holidays," Chief Executive Peter Long told journalists in a call Friday.

Long said the growth and demand for its all-inclusive package holidays is coming from older couples or 'empty nesters' with more disposable income, as well as older families rather than 'budget conscience' younger families.

"Unique holidays are key to our success, particularly in the UK and the Nordics, although Germany is also increasing. We are seeing more repeat bookings and people booking earlier - as there is bigger demand for these kind of holidays - which gives us better visibility. We will be focused on unique holidays going forward," said Long.

As a result, TUI Travel said it will be increasing capacity to long-haul destinations including Jamaica, Dominican Republic and Mexico, which it said is its "real strength in long-haul".

"We see huge growth opportunities on the back off our 787 Dreamliner offering, while the current exchange rate [with a strong sterling] is making these destinations more attractive, with a bias towards the Caribbean," said Long.

TUI Travel said it has sold 88% of its Summer 2014 programme to date, with the sale of unique holidays accounting for over 70% of Summer 2014 bookings to date, up three percentage points on the prior year. It said the number of summer bookings made online also continued to grow, with mainstream online bookings accounting for 36% of all summer bookings.

TUI Travel said average selling prices were up 1% overall, and were up 2% in the UK for Summer 2014 due to the price mix, as it sold more unique holidays.

The travel group also said it is "pleased" with Winter 2014/15 trading, with winter bookings up, and it has seen a strong start to UK trading for Summer 2015.

"At this early stage, we are pleased with Winter trading. In the UK, where 23% of the programme has been sold, bookings are up 3% and average selling prices are up 3%," the group said.

"In the Nordics, where 29% of the programme has been sold, we have reduced capacity in order to strengthen our competitive position in what continues to be a challenging trading environment," it added.

TUI Travel said it continued to rein in losses from its French business, on the back of capacity reductions, while its Accommodation Wholesaler business and its Specialist & Activity business both saw improved profitability.

Revenue in the third quarter saw another dip to GBP3.80 billion, down 2% on last year's GBP3.86 billion, which TUI Travel said was partly due to currency movements, but also due to reduced capacity to Egypt because of unrest in the region.

The group has reduced capacity to Egypt by around 30% over the past two years, although Long said he's hoping to see an increase in demand again for the region, now it has been deemed safe again for tourists to fly there.

For the nine months to June 30, TUI Travel said it narrowed its losses, reporting an underlying operating loss of GBP186 million, compared with GBP213 million a year earlier, although revenue fell by 3% to GBP8.99 billion.

The travel group didn't reaffirm the underlying operating profit forecasts for the full financial year it gave in May, of between 7% to 10% growth, due to restrictions associated with its potential merger with its German parent on making financial forecasts.

"We delivered a strong set of results for the quarter as unique holidays and online continue to grow" said Long.

"We remain pleased with progress in summer trading, despite strong comparatives, and are achieving higher average selling prices across mainstream overall," he added.

TUI Travel shares were down 0.4% at 354.50 pence Friday morning.

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Source: Alliance News

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