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Tour operators and aviation businesses impacted by 737 MAX grounding
Thursday, 22nd August 2019
Source : TUI Group

TUI Group: Hotels & Resorts delivers a strong performance, Cruises continue their growth roadmap in 2019, market competitiveness through increased integration and underlying EBITA down year-on-year in Q3 due to 737 MAX grounding. (impact: 144m euros): 100.9 million euros (Q3 2018: 186.8 million euros)

CEO Fritz Joussen: “We are consistently pursuing our digital transformation roadmap, transforming TUI into a global platform company. The strength of our globally unified brand and direct access to our customer base, already comprising more than 21 million customers, offers great potential.”

“Despite the challenging environment in 2019 to date, our underlying business remains robust, and we expect to deliver a solid performance in 2019, which, however, will not match the prior year’s result, as expected due to the grounding of the 737 MAX. Hotels & Resorts will benefit from our diversified portfolio and Cruises will deliver strong growth. We have significantly reduced our dependence on traditional tour operators over the past five years. The transformation of our Group will continue. The tour operator businesses in our European markets will be brought together faster and more effectively. We are consistently pursuing our digital transformation to develop TUI into a global platform organisation. The strength of our globally unified brand and direct access to our customer base, already comprising more than 21 million customers, offers great potential for the future,” said TUI CEO Fritz Joussen at the presentation of the Q3 2019 results.

In the period under review, TUI Group increased its turnover by 3.7 per cent to 4.745 billion euros (previous year: 4.576 billion euros). On a constant currency basis, turnover grew by 4.4 per cent to 4.777 billion euros. At 100.9 million euros, underlying EBITA declined by 46.0 per cent year-on-year (186.8 million euros), in particular due to the impact of 144 million euros as a result of the grounding of the 737 MAX. On a constant currency basis, it decreased by 49.2 per cent to 98.9 million euros (previous year: 194.6 million euros).

The Holiday Experiences segment, comprising Hotels & Resorts, Cruises and Destination Experiences, delivered an increase in underlying EBITA of 16.7 per cent to 208.3 million euros in the period under review (previous year: 178.5 million euros).

As expected and in line with our announcement made early this year, the Markets & Airlines business performance was also significantly impacted by the 737 MAX aircraft grounding, ongoing since March, as TUI launched a number of measures including the securing of replacement aircraft capacity for the grounded aircraft until the end of the Summer season. Total costs related to the grounding will be approximately up to 300 million euros in the full financial year 2019.

Furthermore, we saw delayed customer bookings driven by the Summer 2018 heatwave, the continued Brexit uncertainty and considerable aviation overcapacity to Spanish destinations continued in the third quarter. In the period under review, underlying EBITA amounted to -103.9 million euros, down on the positive prior-year comparative (previous year: +37.2 million euros), in particular due to the grounding of the 737 MAX with an impact of 144 million euros.

The Group reiterates its guidance for the full year 2019: As announced on 29 March 2019, underlying EBITA will be approximately up to 26 per cent down compared with the rebased underlying EBITA for financial year 2018 of 1.177 billion euros1.

Transformation of tour operating will be accelerated – TUI will transform into a global platform company

Despite the current challenges and volatility in the tour operating business, TUI remains in very good shape. The Group is an international market leader and well positioned for a potential market consolidation in the industry. After the transformation of the Group initiated in 2013, the Markets & Airlines segment (Tour Operators) accounted for 30 per cent of TUI’s earnings, while 70 per cent of earnings are delivered by Holiday Experiences (Hotels, Cruises, Destination Experiences). Traditional tour operators ensure direct access to customers in our European source markets.

“We will continue to strengthen our competitiveness in this area, too, by harmonising our tour operation business, accelerating its transformation and thus increasing its efficiency and profitability,” said Joussen. Within the next 18 to 24 months, the European source markets will be more closely aligned.

At the same time, TUI is driving the digitalisation of the Group further ahead and is investing in state-of-the-art technologies and a unified customer platform (CRM). TUI has entered the next phase of its transformation to develop into a global platform company. Driven by the acquisition of the Italian technology platform Musement, the tours and activities business in the destinations will be significantly expanded. In March 2019, TUI and Ctrip had concluded a significant cooperation scheme. The around 200 million users of the leading Chinese online travel agency will have direct access to the portfolio of tours and activities offered by Musement.

The Group will also accelerate its “TUI 2022” strategy programme. Due to the global expansion of the TUI brand, TUI will tap new markets, in particular in emerging economies with growing middle classes such as China, India, Brazil and Malaysia. A further partnership was recently concluded in South East Asia: TUI will team up with Malaysia Airlines to establish its Malaysia Airlines Holidays business. TUI will tap these future markets through a fully digital approach via an innovative and globally scaling distribution and marketing platform, which forms the basis of TUI’s state-of-the-art IT infrastructure.

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