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TUI Group is ramping up capacity for its summer 2020 holiday program as it looks to take market share from the bankrupt Thomas Cook in a number of markets.
The Hanover-headquartered company reported a strong improvement in trading for the upcoming season with revenue and passenger numbers all making double-digit increases.
To cope with the increase, TUI plans to add a further 21 extra aircraft to its fleet taking the total number north of 170. The aggressive move comes despite the challenges regarding the grounded Boeing 737 Max aircraft, which continue to weigh on earnings.
“I think we will be gaining market share versus everybody else,” Fritz Joussen, TUI CEO, said on a call with journalists on Tuesday.
The opportunities aren’t the same across all TUI’s source markets. In the UK, the tour operator and airline closed; although the shop estate remains; In Germany, Condor is still flying and is about to get a new owner; While in the Nordic region, the former Thomas Cook operation still exists under a new name following a buyout.
“In [the] Nordics more or less I would say the insolvency did not happen but in all other countries I believe the touristic market is shrinking now for the summer season and we are [experiencing] double digit growth,” Joussen said.
TUI’s view seems to be that Thomas Cook’s exit has left a gap that it would be foolish not to try and fill, the only issue being that the overall market is now a little bit smaller.
It’s not just extra aircraft, either. TUI has moved in to contract some former Thomas Cook hotels, particularly in Turkey.
“If we don’t keep the market share this market share will be lost forever,” Joussen said.
Had regulators across the world not decided to ground the Boeing 737 Max following two fatal crashes, then TUI would have around 34 of the jets in its fleet by now.
Safety concerns mean that the aircraft isn’t flying for now and TUI doesn’t expect it to return to service until at least midway through 2020. The prolonged grounding will cost the company between $240 million (€220 million) and $267 million (€245 million) in the current financial year.
Despite improved booking across its tour operator divisions, the uncertainty surrounding the Max has led to a slight downgrading of full-year underlying profit guidance, which now ranges between $928 million (€850 million) to $1.15 billion (€1.05 billion) compared with $1 billion (€950 million) to $1.15 billion (€1.05 billion) made towards the end of last year.
TUI disclosed that it does expect to receive some compensation from Boeing this year.
TUI — like most European tourism-related companies — mostly makes a loss during the winter months, when plenty of people book holidays but fewer take them.
However, as mentioned above early trading is generally a good indication of how the year will progress. For summer 2020, revenue is up 17 percent, with passenger numbers rising 14 percent.
In the three months to the end of December, 2019, TUI’s pre-tax loss narrowed 3.8 percent to $142.3 million (€130.3 million) with revenue up 7.7 percent to $4.2 billion (€3.9 billion).
Richard Clarke, senior analyst at Bernstein, said in a note to investors that it was a “strong update” but added that “concerns remain”.
“[The] Boeing Max remains a risk, as there is not yet certainty the costs will roll off next year and the boost TUI is receiving from Thomas Cook’s exit is likely to be relatively short lived given capacity is rapidly being replaced and another Brexit deadline appears at the end of this year,” he said.
Last week TUI announced it was selling its Hapag-Lloyd Cruises business to its joint venture with Royal Caribbean Cruises in a deal worth $1.3 billion (€1.2 billion).
The company plans to use some of the cash to fuel its digital expansion.