TUI cruises confidently despite larger first half losses

Recent trading for summer 2017 has been in line with expectations, with revenue 8% ahead of last year as customer numbers grew 4% thanks to greater demand for Greece, Spain, Cape Verde, Cyprus and long haul destinations such as the Caribbean offsetting lower demand for Turkey and Egypt. Prices are so far ahead by 4%, with the programme 62% sold, in line with last year.

Driven by growth in its own cruise and hotel brands, revenue for the six months until the end of March grew 8.2% to €6.69bn and underlying losses before interest, tax, depreciation and amortisation declined 3.8% to a €214.4m loss, although if the later Easter and currency effects are removed the loss improved by 6.3%.

In the second quarter, the Anglo-German group increased turnover 4.4% to €3.1bn, although total underlying EBITDA losses declined 22% to €154m.

Forex had a €17m benefit for EBITDA and the timing of Easter was attributed a €38m dent, while there were €31m benefits from the merger of the German and UK businesses.

Fritz Joussen looked past the effect of Easter and foreign exchange rates and saw only positives: “Our transformation to an integrated tourism business is on track. We are delivering strong growth in our hotel and cruise brands. These two segments contribute half of our operating result on a full year basis.

"The TUI Group is changing quickly – our guidance remains unchanged despite a challenging environment. We reiterate our guidance to deliver at least 10 per cent growth in underlying EBITA this year.”

The Hotels & Resorts business delivered substantial growth in its operating result, with underlying EBITA up 28% to €122.8m.

As the cruises sector continued on its growth course, with Tui's underlying EBITA up 52% to €75m, as strong growth was delivered both by TUI Cruises and Thomson Cruises due to the successful expansion of their fleets in summer 2016.

Looking by region, the loss of the tour operating business in Tui's three source market totalled €378.9m, or €384m if excluding Easter effects and currencies, with earnings also hit by Tuifly's €24m sickness charge from German pilots all calling in sick in early October.

Shares in TUI fell 5% to 1,127p in early trading on Monday, though this only sliced the top off a price rise since the start of May.

Broker Shore Capital said the reiterated expectations for EBITA growth would require a circa-€100m improvement in full year operating profit, which is a sharp improvement on the €13m in the half.

"However, we would expect further progress in cruise, aided by the launch of Mein Shif 6, and Hotels & Resorts, with an improved performance from the tour operator segment."