2nd Oct 2014 08:10
LONDON (Alliance News) - UK travel operator TUI Travel PLC Thursday said its full-year underlying operating profit will come in at the top end of its growth guidance, boosted by strong trading in the UK and growing demand for its tailored holidays and all-inclusive package holidays to the Caribbean.
The travel operator, which owns Thomson and First Choice and is in the process of merging with German parent company TUI AG, said it is confident of achieving underlying operating profit growth of at least 9% on a constant currency basis for the financial year ended September 30. It had previously guided for profit growth of between 7% to 10%.
TUI Travel made an underlying operating profit of GBP589 million in its last financial year, up from GBP490 million in fiscal 2012.
Its underlying profit excludes separately disclosed items, acquisition related expenses, impairment of goodwill and interest and taxes.
"Our flexible and resilient business model is enabling us to deliver sustainable, profitable growth against a backdrop of more competitive trading in the commodity space and an increase in airline capacity," said Chief Executive Peter Long in a statement.
TUI Travel shares were trading 1% higher Thursday morning at 386.30 pence, one of the best performing stocks on the FTSE 100.
TUI Travel said trading during the Summer 2014 peak season was strong, driven by the UK and Germany.
"Driving strong trading is high conversion rates from our online platforms and increased customer demand for our unique holidays," Long told journalists Thursday, "We enjoy better margins on those unique holidays, primarily when customers book early".
TUI Travel said its "unique holidays", which are tailored holidays available exclusively via TUI, continue to drive growth, while capacity increases to long-haul destinations including Jamaica, Dominican Republic and Mexico, are also boosting sales.
Long told journalists earlier this year that the growth and demand for its all-inclusive package holidays is coming from older couples or 'empty nesters' with more disposable income, as well as older families rather than 'budget conscience' younger families.
TUI Travel said Thursday that it has sold roughly 38% of its overall mainstream programme for Winter 2014/15, with overall bookings up by 2%. It said it has also seen an "encouraging start" to Summer 2015 trading, with UK bookings up by 11%, boosted by a 2% increase in average selling prices.
"We have seen a very strong start from long-haul. That strength from long-haul sales is coming from Mexico and Dominican Republic, although we also seeing good demand for Greece and the Spanish islands," said Long.
The European travel market was shaken up during the so-called Arab Spring, with many North African destinations seeing a massive drop in tourism demand after the revolutions in those countries. TUI Travel and rival Thomas Cook Group PLC were particularly hit by the political upheaval in Egypt.
In Germany, TUI Travel said package holiday bookings are up 22% since the World Cup. It said overall bookings are up 9%, and margins in Germany are ahead of last year.
TUI Travel said it has now reduced capacity in the Nordics to "strengthen its competitive position", as it continues to faces competitive pressure from other local airlines in the region.
"It's several factors in the Nordics. We are facing a loss of profit from not operating in Egypt, we then increased capacity to the Canary Islands, which in hindsight wasn't a good idea, and we are seeing an aggressive stance from SAS and Norwegian Air. While we are seeing lower volumes, on the positive side, average selling prices are not falling but improving," said Long.
TUI Travel also said it booked a GBP27 million write-down during the year just ended on its loss making Russian business, hit by tough trading conditions for its tour operators in the Russian and Ukrainian markets in the wake of the political crisis in Ukraine.
"The Russian business is currently loss making. The GBP27 million was from the devaluation of the Russian ruble and our inability to raise prices against that backdrop, which has put pressure on the margins. We are taking a cautious view for winter, where we are reducing capacity. We will then assess our programme for next summer," said Long.
It said its reducing capacity by 30% for its Russian programme.
Last month, TUI Travel and its German parent TUI AG reached a deal on their previously proposed merger, which will see TUI Travel shareholders own a 46% stake in a combined group that will have a fully-diluted equity value of around GBP5.2 billion.
By Rowena Harris-Doughty; [email protected]; @rharrisdoughty
Copyright 2014 Alliance News Limited. All Rights Reserved.
Related Shares:
TUI.L