The effect of last year’s heatwave, overcapacity and the weak pound is continuing to have an impact on Tui’s bookings into summer 2019.

As a result, Europe’s largest travel group has tempered its guidance of a 10% compound annual growth rate (CAGR) for the three years to 2020.

Earnings for the current financial year to September 30 are now expected to be “broadly stable” at €1.1 billion compared with the company’s record year in 2017-18.

“Consequently, we are not reiterating our guidance of at least 10% CAGR in underlying EBITA [earnings] at constant currency for the three years to full year 2020,” the company said.

Tui made the admission in an earnings update released late on Wednesday ahead of quarterly results being issued on February 12.

The travel giant is to cut distribution costs by shifting to more direct sales as part of efforts to address the issues it is facing.

The summer 2019 programme is 34% booked, described as being broadly in line with this time last year, however margins are not.

This is due to “a continuation of the sector headwinds” already disclosed in December.

In particular Tui said it was seeing:

  • A negative impact from the “extraordinary hot weather” in 2018, resulting in later bookings and weaker margins;
  • A shift in demand from the western to eastern Mediterranean, which has created over capacities in certain destinations such as the Canary Islands, resulting in lower margins; and
  • Continued weakness of sterling, “making it difficult to improve margins on holidays sold to UK customers”.

The company added: “Previously, it was anticipated that these headwinds would impact primarily H1 (winter), however we are seeing from current bookings an additional impact on H2 (summer), and have updated our guidance accordingly.”

Tui said: “We are already taking specific measures to address markets and airlines headwinds, including harmonisation under one leadership to drive cost savings and efficiencies; reducing distribution costs by shifting to more direct, more online, more mobile; and increasing upselling of activities and excursions to drive revenue and margin benefits.

“We also expect that the continued sector headwinds may trigger market consolidation, and that Tui could be a beneficiary of this.”

The company said: “Despite the challenges experienced by markets and airlines, demand for leisure travel continues to grow in our core markets.

“We have positioned Tui to benefit from this through the successful transformation as an integrated provider of holiday experiences – hotels, cruises, activities and excursions – based on its strong strategic and financial position.

“On top of that, we are planning to enter into new markets generating €1 billion of revenue from one million customers by 2022, driving more demand for our own hotels.

“Holiday experiences delivered 70% of earnings in FY18 and we expect continued strong performance from these parts of our business.

“Having delivered this transformation, we expect the ongoing digitalisation and platforming of our business to drive future earnings, positioning Tui to continue to benefit from the strong mid- to long-term growth in consumer demand for leisure travel.”