Photographer: Ismail Ferdous/Bloomberg

TUI Rides Out Travel Slump as Tourists Shift to Spain, Italy

  • Profit forecast for fiscal year maintained, sales outlook cut
  • Occupancy, prices at RIU hotels rise on Spanish travel gains

TUI AG, Europe’s largest tour operator, said it’s been able to ride out a travel slump to North Africa and Turkey with higher demand for holidays in Spain and Italy, allowing it to maintain its earnings forecast for this year and sending the stock up the most in a month.

The company still sees underlying earnings before interest, taxes and amortization rising at least 10 percent, TUI said Thursday in a statement. Revenue will climb about 2 percent in the year ending Sept. 30, TUI said in a presentation, down from an earlier prediction of at least 3 percent, as geopolitical turmoil hurts demand.

TUI’s competitors Thomas Cook Group Plc and Norwegian Cruise Line Holdings Ltd. both cut their profit forecasts in the past few weeks. The companies are feeling the effects as tourists shun countries targeted by terrorist attacks since early last year, including Tunisia, Egypt and Turkey, and seek locations they perceive as safer. Hanover, Germany-based TUI has compensated for those shifts, amounting to 2 million of its customers, by sending clients to hotels in the western Mediterranean or further abroad.

“The business model is flexible and strong,” enabling TUI to maintain its earnings target “despite extremely negative external effects, Juergen Kolb, an analyst at Kepler Cheuvreux, wrote in a report to clients.

TUI shares rose 4.6 percent to 1,058 pence at 10:05 a.m. in London. That pared the decline this year to 13 percent. The intraday gain of 4.9 percent was the biggest since July 7.

“We had a very good quarter, despite the geopolitical events,” Chief Executive Officer Fritz Joussen said on a conference call with journalists. Demand from U.K. clients so far has not suffered from the weaker British pound following their referendum to leave the European Union, and Turkey was “doing well” in the last-minute business, where clients book closer to their date of travel, the executive said.

Third-quarter underlying profit, which also excludes currency effects, takeovers and disposals, climbed 1.1 percent to 180 million euros ($201 million), TUI said. Sales including discontinued operations dropped 5.4 percent to 4.83 billion euros. TUI typically incurs losses in the first two fiscal quarters, and generates the bulk of profit in the fourth.

Room occupancy at the RIU hotel division, which has large operations in the booming travel market of Spain, rose 5 percentage points while the average rate per bed increased 3 percent. Earnings declined at hotel operations in North Africa and Turkey, which in addition to terrorist incidents in recent months was also the site of a failed military coup in July.

Foreign-currency swings will shave about 100 million euros from operating profit this year, the company said.

TUI said it may add fewer than the 60 hotels it said it would bring on by fiscal year 2019, possibly settling for 50 new properties. Resorts added in the past were often bigger than existing ones, and return on investment of the additions is more important than the number of hotels, finance chief Horst Baier said.

While others may be looking at acquiring hotels in Turkey or Spain, the company will stick with its strategy of mainly investing in the Caribbean, Cape Verde, and potentially southeast Asia, CEO Joussen said.

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