It’s been a difficult year to date so far for the travel and leisure sector buffeted by industrial unrest, terrorism concerns as well as the Zika virus in South America, which have offset the boost delivered by lower fuel costs.
This morning’s half year results for TUI Group have merely served to reinforce the challenges not only facing the European travel sector, but the travel sector as a whole over the remainder of the year.
We got a flavour of that yesterday with Easyjet’s half yearly loss of £24m, with revenue per seat declining 6.6% as the company cut fares to push up the load count.
While losses have narrowed by 13.5% to €245m for TUI, they still speak to a weak trading environment, though the improvement in turnover does suggest that the company is going in the right direction after the recent merger.
The management still appear to be working their way through the ongoing cost cutting exercise of integrating the different pillars of the German and UK businesses, as they continue to offload underperforming parts of their operations.
Having agreed to off load LateRooms.com last year, and the recent €1.2bn disposal of HotelBeds, the company have announced their intention to offload its Specialist Group division as well.
The trading environment continues to be difficult, despite the benefit of lower fuel costs as consumers remain cautious against a backdrop of the recent disruption by French air traffic controllers as well as the terrorist attacks in Egypt, Turkey, Paris and Brussels, and the refugee crisis in the Mediterranean.
Summer trading appears to be in line with the lowered expectations of earlier this year with strong sales for Canary Island holidays, cruises and long haul packages to the Caribbean, but given that we’re in May and the program is only 59% sold suggests we may see further discounting eat into margins as June approaches.
This appears to be where management are focussing their efforts, but the fact that management have restated their guidance would appear to suggest that they aren’t that confident about any uplift as we head into the summer months.
With oil prices also starting to push higher again the risk is that the oil price boost effect starts to fade, though we might see a pick up after Euro 2016, as Europe sees football fans start to think about their holidays in July.
Share price reaction to this morning’s announcement would appear to suggest the same level of concerns about the outlook as the share price trades lower on the day, and remains sharply down on the year.
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