The outlook for Tui Travel appears “promising,” according to analysts at City firm Shore Capital following a “solid” half year trading update yesterday.
Encouraging UK trading driven by increasing controlled distribution, particularly online sales, was helping Europe’s largest travel group.
“Furthermore, margins are likely to improve moving forward due to higher pricing, lower product commissions to third parties and increased online sales,” a note from Shore Capital said.
But it predicted a further reduction in Tui’s agency network.
“We believe the retail estate is likely to continue to shrink, with 70% of Tui Travel’s shop leases expiring over the next five years, potentially allowing for a continued reduction of the fixed cost base.”
Introduction of the new generation Boeing 787 Dreamliner next year was also welcomed.
“This offers Tui the opportunity to expand its product base and move into long haul destinations, but more importantly fly direct from the UK to destinations such as Hawaii and Australia as well as increase the number of flights to Mexico, Florida and other destinations,” Shore Capital said.
“Not only does this reduce competition with low-cost airlines and online travel agents, the Dreamliner is also estimated to use 20% less fuel than other commercial aircraft, in addition to generating higher pricing and demand.”
The firm retained its ‘buy’ recommendation for Tui shares, “highlighting the robust trading momentum from the group year-to-date in addition to its strategy of repositioning the Tui product away from commoditised product into differentiated and exclusive product.
“This should limit competition from both low-cost airlines and online travel agents, allowing for strong sales and margins”.
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