13th May 2020 10:17
(Alliance News) - TUI AG on Wednesday reported a widened interim loss as the Anglo-German tourism operator embarks on 8,000 job cuts in order to cut 30% of costs.
In the six months to March 31, TUI recorded a loss after tax of EUR845.8 million, significantly wider than the EUR289.1 million loss seen the year before.
In the second quarter - covering the three months to March 31 - TUI reported a EUR740.5 million loss.
Turnover was broadly flat year-on-year in the first half at EUR6.64 billion versus EUR6.68 billion a year before. In the second quarter, however, turnover declined 10% to EUR2.79 billion.
TUI's Hotels & Resorts business's first half underlying earnings before interest and taxes cratered 69% year on year, while the Cruise unit's underlying Ebit dropped 75%. The company's Destination Experiences unit recorded a EUR29.4 million loss in the period.
Holiday Experiences' underlying Ebit was down 83% and Markets & Airlines made an EUR802.9 million loss.
TUI said Covid-19 is the "greatest crisis the tourism industry has ever faced". To combat the outbreak, TUI said it is looking to permanently reduce its cost base by 30% - which TUI said will result in 8,000 jobs "either not being recruited or reduced".
At the end of the first half, TUI had 53,525 employees.
But before the outbreak occurred, TUI noted January was its "best ever" bookings month in its history.
"The impact on our programme and operations has been undeniably acute. For the first time ever in the company's history, our full programme was suspended and alongside many other corporates across the sector State Aid was applied for. As a result of our swift action, TUI was the first business in Germany to receive state support in these exceptional times," TUI said.
TUI received EUR1.8 billion from the German government in the form of a KfW bridge loan. TUI noted its annual dividend will be suspended during the course of the loan. At May 10, TUI had total cash and available facilities of EUR2.1 billion.
"Whilst our programme is suspended, significant crisis measures have been taken across the business to reduce cash costs and expenditure to an absolute minimum. From capex, to marketing, to rental and leases, all expenditure has been cut or paused. Strict cost discipline, required during these exceptional circumstances, has been a top priority for the business as a whole," TUI continued.
The travel agent noted its largest cost base is accommodation, but has invoked a Force Majeure clause on all its hotel contracts, cutting overall monthly cash cost base by more than 70%.
TUI continued: "Incremental aircraft leases are being renegotiated with our lessors, as have our rental lease agreements with landlords in our Hotels & Resorts business. Cruise ships have been laid up, saving around about 50% of monthly costs."
Going forward, TUI expects its monthly cash outflow to be between EUR250 million and EUR300 million per month for the remainder of financial 2020.
Typically, TUI has monthly cash outflows of between EUR700 million to EUR1.40 billion. The sharp drop, TUI said, constitutes its "absolute crisis minimum".
"The effects of the Covid-19 pandemic will have a considerable impact on the development of group earnings. Cost savings will only partly compensate for the negative effects. We therefore expect group turnover and underlying Ebit to decline significantly compared with the previous year," the travel agent added.
Since the beginning of the measures to mitigate Covid-19, TUI has seen a "material decline" in bookings for Summer 2020 as a result of the travel suspension currently in place. Bookings for Summer 2020 are down 36%, with 35% of the programme sold to date, down from 59% sold at the same point last year reflecting TUI's cancelled programme from mid-March.
The Markets & Airlines programme across three of its regions are on suspended until middle of June with Cruise brands on a similar suspension.
Looking ahead, TUI said Holidays will remain a "high priority" for its customers and it sees customers committing early for future seasons. Winter 2020/21 bookings are "still very early in the booking cycle", but UK bookings are up 8%. Summer 2021 bookings are "looking positive on small volumes", TUI said.
The travel agent added: "We expect travel will be different for the remainder of this year, however we strongly believe our customers will still want to holiday. Online enquiries to our website indicate to us that customers are still actively researching holidays and destinations; customers want to travel as soon as tourism can take off responsibly and safely."
Shares in TUI were down 2.8% in London on Wednesday mid-morning at 257.00 pence. In Frankfurt, the shares were down 3.4% at EUR2.94.
By Paul McGowan; [email protected]
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