Tui Group today revealed it had largely avoided the summer heatwave meltdown that led to rival Thomas Cook issuing two profit warnings in quick succession.

Europe’s largest travel group reported a 3.7% fall in pre-tax profits to €972 million against a pre-tax loss of £53 million by Thomas Cook in the same 12 month period to September 30.

Tui described 2018 as a “challenging year, in particular for tour operators”.

The group’s markets and airlines unit saw earnings decline to €449.8 million from €526.5 million the previous year despite a 4.7% growth in customers, further increases in direct and online distribution, and all markets rebranded as Tui.

The group admitted that “the ability of markets and airlines to outperform was limited by the prolonged hot weather this summer in northern Europe and significant levels of airline disruption, in what continues to be a challenging market environment”.

Tui’s northern region saw earnings decline to €251.1 million against €345.8 million a year earlier.

Tui said: “The weakness of pound sterling resulting from the Brexit vote, prolonged air traffic disruption caused by French air traffic controller strikes and a prolonged heatwave in northern and central Europe impacted the entire sector and were also reflected in the operating result delivered by markets and airlines, which fell short of the previous year’s levels.”

The group reiterated its guidance of at least 10% growth in in underlying earnings [ebitda] in the next 12 months with growth from investments, digitalisation and efficiency, as well as a “double-diversified” business model, helping to mitigate market challenges.

Growth in underlying earnings of 10.9% year-on-year to €1.2 billion on a 6.3% rise in turnover to €19.5 billion was driven by a strong performance in its holiday experiences, with continued high demand for its hotels and clubs, cruises and destination experiences.

The company saw increased demand for holidays in Turkey, North Africa, Greece and the Caribbean while growth in cruise was helped by new ship launches in the UK and Germany with high occupancy and average daily rates.

The UK is more than 20% booked for summer 2019, up 5% year-on-year, although the average selling price is 1% down.

Tui highlighted whether its airlines will continue to have access to EU airspace as the main concern surrounding Brexit.

“We will continue to address the importance of there being a special agreement for aviation to protect consumer choice with the relevant UK and EU ministers and officials, and are in regular exchange with relevant regulatory authorities,” the company said.

“We are currently developing scenarios and mitigating strategies for various outcomes, including a ‘hard Brexit’, depending on the political negotiations, with a focus to alleviate any potential impacts from Brexit for the group.”

Group CEO Fritz Joussen said: “We are investing, we are growing with Tui’s high-margin products and services and our businesses are increasingly scaling.

“Today, our own holiday experiences content account for more than 70% of our earnings: hotels, cruises, excursions and destination activities.

“This enables us to clearly differentiate ourselves from the competition.

“With more than 20 million customers, use of state-of-the-art IT and intelligent customer systems, we have considerable potential for new business, turnover and earnings.

“We will continue our successful transformation. The next step will transform Tui into a digital and platform organisation.”

He described the 2018 results as being “particularly gratifying given that we were operating under exceptional circumstances last year.

“In the UK, the exchange rate and purchasing power of sterling were adversely affected by Brexit.

“Air traffic in Europe faced particular challenges. And in our European home markets, we experienced a record summer – with a summer heatwave lasting right into the autumn. This brought its weight to bear on results in our sector in the course of the financial year.”

In a letter to shareholders, he added: “There is no reason and no indication to believe that demand for travel will decline – on the contrary.

“We have identified potential in many new markets, in particular in the countries of South East Asia, where we are expanding our hotel portfolio and building Tui’s position.”

He said: ”Our classical tour operation business is characterised by strong competition, seasonality and low margins in European source markets. That is why we must identify synergies and enhance our efficiency.

“Since the summer, we have clustered the group’s worldwide tour operators and airlines into ‘markets & airlines’, managed by an executive board member.

“We have to learn more from one another, rapidly transfer successful models from one market to another and harmonise non-customer-facing activities.

“This transformation has begun and will enhance the efficiency and competitiveness of our classical tour operation business.

“Where markets have already achieved the required level of maturity, Tui is already fully digital. Tui Nordic in Scandinavia is an example of that. We will not ignore the social and cultural particularities of our markets and customers, but we will be at the forefront of this transformation in other countries, too.

“Today, 70% of our operating result is delivered by holiday experiences developed and designed by us – hotels, cruise ships, excursions and activities in the holiday regions. This is where customers experience the strength of the Tui brand. These holiday moments make holidays with Tui so special and personal.

“We are growing and investing in this segment so as to strengthen it.

“Despite the large variety of holiday experiences offered by Tui Group, we want them to display a distinctive signature. This includes our group’s own hotel brands such as Tui Blue, Riu, Robinson, Tui Magic Life, hotel concepts such as Tui Sensimar, Tui Sensatori and Tui Family Life, global hotel purchasing with our partners, the cruise lines and destination activities.

“This is where we are seeking further growth. We know our customers very well, we know when they travel where, and what services they appreciate, be it holiday destinations, hotel rooms, cruise suites, excursions or activities.

“If we put this knowledge to smart use, we can create great value added for our customers – and for us, as we will be able to generate additional turnover and earnings.

“We have paved the way for that growth through our comprehensive digitalisation strategy and our investments in IT as well as new technologies, which are increasingly paying off. Here, too, our transformation as a digital company has progressed and opened up new growth areas.

“The destination activities market, in particular, is delivering extremely strong growth, promising highly attractive returns and still typically features many small, local providers. With more than 27 million customers – thereof around 21 million guests from our European source markets, a highly professional international team on the ground, a strong digital infrastructure and networked customer systems, we are well placed to take a leading international position in this market for tours and excursions and to deliver very profitable growth.

“Usually, several months pass after a holiday booking before our customers depart for their trip. That period offers us great potential to submit personalised offerings for activities in the destination to our customers – from the ‘select your room’ option via special excursions through to reservations for restaurants, sporting programmes and wellness facilities.

“Having identified the growth potential in this area, we made investments in the completed year by purchasing two companies.

“By acquiring destination management from Hotelbeds Group, we doubled the footprint of destination experiences from 23 to 49 countries.

“We now have a team on the ground in almost every major destination in the world and are able to develop new products and services for our customers.

“This summer, we purchased the Milan-based technology start-up Musement. The Italian company has developed a platform that already pools a great portfolio of holiday experiences and offers its users customised excursions.

“Integrating this approach into our business has enormous potential. We expect this acquisition, the further development of our digital platform and the expansion of our offering to contribute substantially to our future growth.”

Tui revealed it has started using blockchain technology to manage its own hotel capacity to achieve optimum occupancy and improve profitability through its own yield management system.

The group sees modern IT, Artificial Intelligence and algorithms as helping to further increase operating results in future.

“The international strength of the Tui brand, modern IT and more than 20 million customers form a perfect basis for additional business and new growth,” Joussen said.

“This knowledge enables us to bring customer wishes together with offerings and increase turnover and earnings in this segment without having to make any major investments.”

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