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As the post-lockdown travel boom continues, investors holidaying by the sea will ponder the fact that a rising tide does lift all travel companies. Buoyed by the post-pandemic boom in leisure demand, Germany’s Tui could point to a strong outlook for summer bookings alongside its third-quarter results on Wednesday.
After the extreme heat of this summer, Tui’s chief executive Sebastian Ebel expects his clients will begin changing their holiday destinations to cooler climes in Northern Europe — think Belgium or the Nordics. He says Tui stands ready to cater to their needs. He also expects more travel in the nippier seasons.
For now Tui will make the most of its time in the sun. Third-quarter revenue of €5.3bn was 19 per cent higher than last year. That marks its first profit for this reporting period since Covid-19 struck. With its latest €1.8bn capital increase it repaid the pandemic-era funding provided by the German government. Ebel anticipates a solid summer season, with bookings at 95 per cent of 2019 levels, and prices heading north.
Tui often touts the advantages of its integrated model, which includes travel agents, flights, hotels and cruise ships. Yet paying for seats and beds in advance makes for risky bets, leaving Tui exposed to unforeseen events. Indeed, a Bernstein report notes that Tui has promised to reach €1.2bn of ebit every year between 2016 and 2020, but was each time blown off course by a different squall. These included Brexit, heatwaves and, of course, the global pandemic.
That helps explain investors’ reluctance to get onboard with its equity story. The group trades at 6.2 times next year’s earnings, according to S&P Capital IQ.
Such caution is warranted. Inflexibility surely makes for a poor business model. Tui says it aims to limit the size of the pre-booking bets it takes. But with climate-related events becoming increasingly common, the group may find itself oft buffeted by adverse winds.
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