The fiscal third-quarter results of European tour operator TUI Travel indicated that the long-held tradition of a family vacation remained resilient amid the economic hardship on the continent. Revenue declined by around 2% on the year to GBP 3.7 billion, mainly due to a 5% currency headwind (in eurozone business) as well as an earlier Easter holiday (at the beginning of April) that resulted in some travel taking place toward the end of the March quarter instead.
For the critical summer season, management pointed to strong initial bookings performance in key markets such as the United Kingdom and Nordic regions and expects the firm to end fiscal 2012 (in September) with topline growth flat from 2011 (after taking into account unfavorable translation effect).
Exclusive and differentiated travel products provided a significant increase to vacation bookings across different geographical markets for TUI Travel during the third quarter. In addition, a broad customer base and financial problems at main rival Thomas Cook in recent months helped the firm’s key U.K. business deliver strong results and gain market share.
However, results from France remained weak due to a slow recovery in travel demand to turbulent North African destinations and package tour business to Greece took a hit from negative press on social unrest in the country. The firm reported good results in the wholesale and retail online travel agent (OTA) businesses, highlighting a double-digit rate increase in business-to-consumer hotel booking revenues thanks to its strong position in the U.K. and growing penetration in various Asian markets.
In the third quarter, underlying operating profits dropped by 16% year over year to GBP 74 million, due to deleveraging of expenses and additional investments in the AsiaRooms.com business.
Fiscal fourth quarter is seasonally the strongest quarter for TUI Travel, during which the firm typically makes the bulk of operating profits and free cash flows, and we expect the pattern to hold true this year. Based on preliminary booking data, TUI Travel is off to a good start for the all-important summer travel season. Average selling prices are up 9% in the U.K., 3% in Central Europe (including Germany) and the Nordic region, and remain flat in Western Europe.
Ahead of results from 2011, the firm reported that close to 90% of the summer travel programs in the U.K. and the Nordic regions had been sold at the end of July, while more than 80% of the summer programs were sold in other markets. Initial booking and revenue data from the wholesale and retail hotel business showed solid year-over-year increases as well. In the specialty travel category, demand was boosted by travel-themed programs thanks to the Olympics and the UEFA European Championship, but gap-year travel and other education-related programs remained weak as parents tightened their purse strings.
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