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TUI Travel strategizes how to keep making money despite economic slowdown

Dec 19, 2012 9:58 am

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TUI is surprised to see that tourism has only been slightly impacted by the recession and plans to increase efforts to enter the cruise industry and emerging markets, while ditching its less profitable shipping business.

— Samantha Shankman

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Vladimir Yaitskiy  / Flickr.com

A TUI Turkiye bus is full of tourists. Vladimir Yaitskiy / Flickr.com


TUI AG, the owner of Europe’s largest travel company, said it expects a “slight” increase in revenue this fiscal year and plans to restore dividends soon as tourism in the region resists the weak economic climate.

The shares rose as much as 5 percent in Frankfurt, the steepest gain in a month, as Chief Executive Officer Michael Frenzel said dividend payments are likely to resume in the “near future,” having been absent since 2008.

Frenzel, who will be replaced by Friedrich Joussen in February, has been trying to focus TUI on its tourism business by putting units such as shipping up for sale. The tour industry is “less severely” affected by macro-economic crises, TUI said. The company’s business model “has proven to be stable and sustainable despite a challenging economic framework in our key source markets in Europe,” Frenzel said in a statement.

TUI today reported a 4.9 percent gain in revenue to 18.3 billion euros ($24.3 billion) for the year through September, matching estimates. Adjusted operating profit rose 24 percent to 746 million euros and Hanover, Germany-based TUI said it expects operating earnings this year to be on a par with that.

“TUI is working on the expansion of its emerging-markets business,” Frenzel told journalists at a news conference in Hanover today. The company plans to play an increasingly bigger role in the cruise business, he said.

Payout differentials

Frenzel said TUI wouldn’t propose a dividend last year even as the company already has the necessary operating earnings. A payout depends on other differentials, including the company’s earnings per share, restructuring costs and the equity resulting from its stake the Hapag-Lloyd shipping business, the CEO said.

“We would wish to focus on further strengthening the company’s substance in weighing off opportunities and risks for the current financial year,” he said.

TUI shares were up 4.3 percent at 8.17 euros at 2:51 p.m. local time, extending their gain this year to 70 percent.

Pretax profit increased 22 percent to 252.7 million euros in the year through September, in line with the average estimate of in a Bloomberg survey of 11 analysts.

Operating earnings gained more than 20 percent at the TUI Travel and TUI Hotels and Resorts units.

TUI Travel Plc, which accounts for more than 95 percent of TUI’s revenue, said on Dec. 4 that it plans “sustainable future growth” with annualized underlying operating profit growth of 7 percent to 10 percent in the next five years.

‘Optimistic’ estimates

TUI posted a net loss of 15.1 million euros compared with profit of 23.9 million euros last year, after a loss widened at Hapag-Lloyd.

“Our estimates were more optimistic due to a higher expectation regarding the income from Hapag-Lloyd,” Herbert Sturm, an analyst at DZ Bank AG in Frankfurt, said in a note to clients today. “The outlook for the current financial year 2012/13 seems for us realistic but cautious.”

Hapag-Lloyd said yesterday it is discussing a possible merger with Hamburg Sued. Earlier this year, the German city- state of Hamburg increased its stake in Hapag-Lloyd, Europe’s fourth-largest container line, to 37 percent by buying a part of TUI’s holding. TUI still owns 22 percent, which it might divest in an initial public offering or sell to third-party investors.

Editors: Kim McLaughlin and Paul Jarvis.

To contact the reporter on this story: Julie Cruz in Frankfurt at jcruz6@bloomberg.net. To contact the editor responsible for this story: Celeste Perri at cperri@bloomberg.net.

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