TUI’s Cruise Ships Stopped It Sinking During Europe’s Heatwave

(Bloomberg) -- TUI AG sidestepped the impact of a summer heatwave that led millions of Europeans to holiday at home as its global cruise-ship arm continued to pull in customers.

  • Operating profit at the world’s largest tour operator gained 11 percent in the year through Sept. 30, contrasting with a 23 percent drop at Thomas Cook Group Plc, its closest rival, which was forced to slash prices as hot weather further north led rooms in the Mediterranean to lie empty.

Key Insights

  • TUI Chief Executive Officer Fritz Joussen said it too faced a challenging market, while being partially insulated from the trends that hammered Thomas Cook by a reduced reliance on the traditional tour-operator business, which now accounts for only 30 percent of the business.
  • The cruise-ships unit, which attracts people year-round and has a major presence in the Caribbean, as well as Europe, boosted operating profit by more than a quarter. TUI’s 300-plus in-house hotels lifted earnings almost 20 percent; Cook rents in most of its rooms, giving it lower margins that can disappear entirely when prices are cut.
  • Northern Europe was still a weak spot, and Hanover, Germany-based TUI’s airlines also had a hard time as strikes and disruption at air traffic control-providers disrupted operations.
  • While bookings for the quieter winter season are slightly down, TUI is predicting a 3 percent gain in sales for fiscal 2019, which it says should send operating profit up at least 10 percent. Brexit may pose a challenge, but the company says it’s developing mitigation strategies for outcomes including a no-deal split.

Market Reaction

  • TUI stock rose as much as 6.7 percent, the most since March 2016.
  • The stock was priced at 13.53 euros as of 9:24 a.m. in Frankfurt, paring declines this year to 21 percent. Thomas Cook has slumped 74 percent over the same period.

Get more

  • TUI’s operating profit of 1.15 billion euros ($1.3 billion) was in line with company forecasts. To view the company’s full-year earnings statement see here.
  • Click here for the story of Thomas Cook’s earnings slump.

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