Tourism Giant TUI Group Bears Up Under European Heat and Maintains Sunny Outlook

Hot weather across most of northern Europe and weakness in its traditionally strong UK market put a dent in TUI Group’s profit during the third quarter.

The Hanover, Germany-based travel company, which runs hotels, cruise ships and tour operators, saw pre-tax earnings slip 27.4 percent to $171 million (€147.5 million) in the three months up to the end of June. Revenue increased 5 percent to $5.8 billion (€5 billion).

The UK was just one problem for TUI with others including its French source market and air traffic control strikes.

Despite the series of setbacks, TUI still expects to hit its guidance for the full year, which includes 3 percent turnover growth and at least a 10 percent increase in underlying EBITA (earnings before interest, income taxes and goodwill impairment).

Although TUI has managed to make its businesses less seasonal over the past few years, European travel companies make the bulk of their profits over the summer months, meaning that we’ll have to wait until the end of this year to find out just how successful the company has been.

Too Hot to Travel

A heatwave across much of Northern Europe during the last couple of months has been a source of concern for tour operators. Many have blamed lackluster late bookings (holidays booked close to departure) on the good weather – and TUI is no different.

TUI said that in the UK bookings were actually ahead of the prior year but that “margins have reduced primarily due to the weaker Pound Sterling and also as a result of the weather”. There was a similar picture in France, where the “rate of sale has slowed in recent months, in part due to the World Cup and warm weather”.

France has been a problem area for TUI for a number of years and the lackluster showing this quarter prompted a “detailed operational review”.

“I’m a little bit of a cautious man and I know from history that if the wether is so hot, people say ‘maybe I’ll save the money for the next winter vacation,'” CEO Fritz Joussen said on a call with journalists after the release of the results.

Cruise Growth

It wasn’t all bad news for TUI with cruises—one of its key growth areas—continuing to do well.

Revenue grew 6 percent to $263.5 million (€227.3 million) and underlying EBITA jumping 36 percent to $105.4 million (€90.9 million).

“I think when you look at the cruise business, I mean the journey is enormous. At the time of [the] merger [in 2014]… the cruise business was virtually not producing any contribution to our – the profits. And now we are [at] 23 percent, and that journey will go on,” Joussen said on a call with analysts.

Just last month TUI announced it had ordered two new ships for its joint venture with Royal Caribbean.