Tui is making contingency plans to offset uncertainty over the impact Brexit could have on flights between the UK and the rest of Europe.
The disclosure came today as Europe’s largest travel group reported an annual profits hike of 12% in the third year of strong earnings growth.
Tui saw earnings [ebitda] rise to €1.1 billion over the previous year.
The company, which ditched the Thomson name in the UK in October as part of a global rebrand, saw pre-tax profits soar year-on-year by 77% to more than €1 billion.
“With regard to the ongoing Brexit negotiations between the UK and the EU, we expect and strongly encourage those involved in the negotiations to have a workable solution in place for the airlines, including that current arrangements are extended until such a solution is reached,” Tui said.
“Whilst we are not able to control the outcome of these negotiations, we are putting contingency plans in place in order to manage potential disruption to our operations.”
Tui added: “Despite the Brexit backdrop, the UK continues to deliver a resilient performance in line with our expectations.
“Year-on-year bookings and selling price for winter 2017-18 reflect the very strong start in prior year trading – when bookings were up 19% including Marella Cruises – and impact of currency inflation.
“Load factor and percentage of the UK programme sold remain in line with prior year.
“We are also very pleased with the progress of the UK rebrand, with unaided awareness of the Tui brand performing ahead of our original expectations for this stage.
“As expected, although UK demand for holidays abroad remains strong, margins across the package holiday market are normalising, primarily as a result of the weaker pound sterling. Nonetheless, our margins remain healthy and we are well positioned competitively.
“Tui is the clear market leader in package holidays in the UK, with a strong net promoter score of 55 in FY17, high levels of direct and online distribution, and a highly integrated and efficient business model.”
Tui reported an “encouraging improvement” in Turkey and North Africa, as well as earnings from new hotel openings.
Looking forward, Tui said: “For summer 2018, source markets trading is performing in line with our expectations, albeit at a very early stage.
“As usual for this point in the booking cycle, only the UK is more than 20% booked.
“UK booked revenue, excluding Marella Cruises, is up 2%, with bookings slightly below the strong start to prior year when bookings were up 9% including Marella Cruises and average selling price up 4%.”
The company said that trading for future seasons is progressing well overall.
“Our balanced portfolio of markets and destinations and strong competitive position leave us well placed to deliver further growth,” the company said as it forecast at least 10% earnings growth for the current financial year.
Winter volumes are ahead of prior year, with strong growth in bookings for Thailand, Cape Verde, North Africa and Cyprus.
However, Tui revealed that demand is “more subdued” for the Caribbean following September’s hurricanes although this is offset by demand for other destinations with overall long haul bookings up 4%.
Bookings for new ships across Tui’s cruise brands and the existing fleet are progressing “very well” with a year-on-year increases in fleet yield.
Two ships are to be launched in May 2018 – the new Mein Schiff 1 for Tui Cruises in Hamburg – and Marella Explorer – previously Mein Schiff 1 – in Palma.
Further launches will follow in summer 2019 for Tui Cruises and Marella Cruises, as well as two new expedition ships for Hapag-Lloyd Cruises in 2019.
Fiona Cincotta, senior market analyst at spread betting firm City Index, said: “Tui isn’t letting the weaker pound and Brexit uncertainty spoil its time in the sun.
“Profits have held up well, considering how much more expensive it’s been for UK residents to travel overseas thanks to Sterling’s slump.
“Strong demand in Germany, the Nordics and Benelux played a big part in helping the company comfortably meet its earnings guidance.
“Bookings for winter so far tell a similar story to summer, with some weakness in the UK offset by strong growth in other source markets.
“Overall, though, bookings are tracking ahead of last year, while a recent strengthening in the pound could tempt more Brits to travel abroad–though whether currency volatility will ease next year remains to be seen.
“Demand for holidays to Turkey and North Africa is continuing to improve following recent terror attacks, while the company appears to have weathered US hurricane season fairly well, too.
“Pressure on margins, especially in its UK business will nag at investors, given the strong share-price performance this year.
“But overall this is a solid result that puts Tui in a good position to progress its UK re-branding work.”
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