Sales are increasing for Tui, but the cost of living crisis may soon bite

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Hundreds of flights delayed or cancelled, an engine fire on a Tui plane at Manchester Airport, and an ugly apology from the CEO… it hasn’t been an easy summer for the world’s biggest tour operator.

On Wednesday, a Tui report on bookings and revenue from April to June will shed light on the entire holiday sector in the high season.

A surge in demand for travel has caused chaos at airports in the UK and elsewhere in Europe as they struggle to recruit baggage handlers and security staff following massive redundancies during the Covid pandemic.

Tui insists it has canceled fewer flights than some of its rivals, including easyJet and British Airways, which have scrapped thousands in recent months. But UK boss Andrew Flintham apologized to customers in June and promised to learn lessons. In July and August (so far) it has flown all scheduled flights and claims it takes nine days on average to issue refunds.

After the half-term cancellations in May, Tui said bookings had slowed across the industry – unsurprisingly given the chaotic scenes at airports – but it still expects sales this summer to be close to pre-pandemic levels. Brits are particularly keen to travel: by mid-May, more of us had bought a Tui holiday than in the same period in 2019.

Tui has a lot to offer, but the loss of cash when you have flights and big hotels to fill is huge

Sophie Lund-Yates, analyst

This summer, many families are taking their first trip abroad since the pandemic started. They splash out on longer trips, and upgrade to four- or five-star hotels and better rooms.

Spain, Greece, Turkey and Mexico are popular destinations, with an all-inclusive holiday in Mexico not costing much more than a break in Greece, says Tui.

Germans are also desperate to fly abroad, and summer travel bookings in Europe’s biggest economy are back at 2019 levels, or in some cases exceeding them, according to a recent poll by data group GfK.

At Tui, revenue in the second quarter rose to 2.1 billion euros from 250 million euros a year earlier, as demand picked up again. The group operated at 71% of pre-pandemic capacity in the period. The hotel and resort operations delivered a third quarter in a row with a positive underlying operating result since the start of the pandemic.

For cruises, the company hopes for an improvement in the second half of the year; many ports were still closed earlier this year, and ships could only sail on limited routes.

Sophie Lund-Yates, equity analyst at Hargreaves Lansdown, says: “Tui doesn’t just operate flights – it has a much wider package travel business. In some ways, that’s what makes Tui more defensive – it has more to offer and lots of cross-selling opportunities. But getting capacity back up to full is also a much higher priority for it: the loss of cash when you have planes and huge hotels to fill is huge.”

Like others in the holiday industry, Tui faces challenges as the cost of living crisis takes hold and people stretch their spending. There is potential for the company to do well in the future thanks to its more diverse offerings, but analysts warn that further turbulence is likely for now.

After nine years at the helm, CEO Fritz Joussen will step down at the end of September and hand over to Sebastian Ebel, Tui’s chief financial officer. He will have to steer the company through more turmoil, as Britain and Germany are likely to fall into long or deep recessions, largely due to Russia’s war in Ukraine.

Britain is heading for a recession lasting more than a year and double-digit inflation, the Bank of England warned last week as it raised interest rates for the sixth time in a row. “The world may soon be teetering on the edge of a global recession, just two years after the last one,” International Monetary Fund chief economist Pierre-Olivier Gourinchas, warned last month.

This summer holiday could be the last hurray for many.

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