Venturing Beyond the Pandemic: Tui Booms with Record Sales and Prosperity
Tui, the globe's colossal travel giant, is basking in a record-breaking sales streak after the pandemic, entering into a prosperous financial phase. CEO Sebastian Ebel exuded confidence during a recent financial presentation, noting anticipated growth in profits, customers, and income. However, he indicated that the era of eye-popping prices has waned.
Breathe a sigh of relief as inflation's grip on travel costs starts to loosen, declares Ebel. Anticipate just a modest 3% average increase in prices for the upcoming summer season, although prices may vary by location. Some regions, such as Greece – which has experienced higher inflation – might witness a price increase of up to 5%.
Tui celebrated a monumental milestone for the financial year ending in September 2022, outpacing the 20 billion euro mark for the first time since the Hapag-Lloyd container shipping company sale. This unparalleled increase translates to an impressive 25% upgrade compared to the previous year. The swelling earnings can be attributed to a 5% average price hike per trip and a 13% surge in the average revenue per bed and night in the hotel sector, which stood at approximately 87 euros.
These enhancements resulted in a remarkable surge in operating earnings before interest and taxes, soaring from 409 million to 977 million euros after adjusting for special items. This astronomical leap led to a financial surplus of 306 million euros for shareholders in the twelve-month period ending in September 2022, starkly contrasting the 277 million euros deficit recorded in 2021.
The Management Board is overjoyed with the prospective accomplishments of the upcoming financial year, projecting a staggering 10% uptick in revenue and an elevated 25% increase in operating profits, placing the collective revenue at more than 1.2 billion euros. Ebel anticipates that nearly half of the anticipated revenue growth in 2024 will originate from new customers. This ambitious expansion strategy eyes untapped markets beyond Germany.
Ebel isn't worried about any price-sensitive skittishness from customers. Yet, the lower-price segment market has grown more competitive. Tui primarily caters to four and five-star hotels of the premium tier.
Ebel is upbeat about the current winter business, with 56% of the winter program already sold. Encouragingly, the Hamas terror attack in October 2023 only temporarily disrupted bookings, highlighting Middle Eastern destination's resilient traveler sentiment. Assuring normalcy, Ebel predicts the Egyptian tourism market to recover by Christmas 2023.
Insight Flashes:
Rising inflation isn't a throwback for various European travel destinations, with some regions experiencing escalations of over 11.5% year-over-year. Nevertheless, Germany's unique inflation dynamics, such as the reduction in energy costs, provide relief for travel expenses within the country.
This optimistic trend suggests that even destinations like Greece could still pique tourists' interest, considering the robust appeal of TUI's services and the company's strategic ability to manage price increases.
In summary, the travel sector's advancement signifies a compelling outlook for TUI as the company looks forward to robust demand and growth, post-pandemic.
Additional Data Tidbits:
First Quarter 2025 Earnings: - Revenue: €4.87 billion, a 13% increase from the first quarter of 2024[1][2][5]. - Net Loss: €85.4 million, a 30% reduction from the first quarter of 2024[1][2]. - Earnings Per Share (EPS): €0.17 loss per share, improved from €0.24 loss in the first quarter of 2024[1].
Forecasted Future Financial Performance:
- Revenue Growth: TUI projects annual revenue growth of 5% to 10% over the next three years, which is lower than the 10% growth forecast for the German Hospitality industry[1].
- EBIT Growth: Management reiterates its forecast for EBIT growth of 7-10% for the 2025 fiscal year, despite competitors expanding their capacities[2].
Addressing Price Increases due to Inflation:
- Strategic Partnerships: By integrating Ryanair into its dynamic packages, TUI saw a 45% increase in app sales in the UK, offering more competitive packages[2].
- Expansion into New Markets: To minimize dependence on European markets with high inflation rates, TUI is expanding into Southeast Asia and Latin America[2].
- Hotel Facilities Expansion: TUI is building new resorts in Vietnam and Indonesia to improve margins, and mitigate inflation's impact[2].
- Debt Reduction: TUI has stabilized its net debt at €4.1 billion, part of the company's strategy to manage costs and improve financial stability[2].
Market View:
- Share Price Performance: TUI's share price, despite positive earnings, is under strain, dropping 15% from a week ago, trading at €7.104[1][2].
- Valuation: With a P/E of 7, the stock appears undervalued, half of the historical average. Analysts suggest price targets of €14-16, pointing to substantial upside potential[2].
Inflation Impacts:
- Airline Tickets and Private School Fees: Inflation may rise due to surging airfares and sharp hikes in private school fees in the UK, potentially impacting TUI's income and profitability[3].
- Services Inflation: Services inflation may rise above 5%, which might influence TUI's pricing strategy and operations[3].
In conclusion, TUI is managing price increases through strategic partnerships, market expansion, hotel facility expansion, and debt reduction. However, challenges related to inflation, particularly in the UK market, require strategic adaptation and cost control.
