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As the travel industry experiences a post-lockdown boom, investors vacationing by the sea will contemplate the positive effect this surge has on all travel companies. TUI AG, fueled by the post-pandemic increase in leisure demand, reveals a promising outlook for summer bookings alongside its third-quarter results.
TUI’s CEO, Sebastian Ebel, predicts that after the scorching heat of this summer, clients will seek cooler destinations in Northern Europe, such as Belgium or the Nordics. TUI is prepared to cater to their preferences and anticipates increased travel during the cooler seasons.
Currently, TUI is thriving. Its third-quarter revenue of €5.3bn represents a 19% growth compared to last year, marking its first profitable reporting period since the onset of Covid-19. With its recent €1.8bn capital increase, TUI has repaid the pandemic-related funding provided by the German government. Ebel expects a successful summer season, with bookings at 95% of 2019 levels and rising prices.
Although TUI often highlights the advantages of its integrated model, which includes travel agents, flights, hotels, and cruise ships, the practice of pre-booking seats and beds carries inherent risks. TUI has struggled to achieve its promised €1.2bn in annual EBIT between 2016 and 2020 due to various unforeseen events, including Brexit, heatwaves, and the global pandemic, as noted in a Bernstein report. Consequently, investors remain cautious about TUI’s equity story, with the company trading at 6.2 times next year’s earnings, according to S&P Capital IQ.
This caution is justified as inflexibility is undoubtedly a poor business model. TUI acknowledges the need to limit the size of pre-booking bets it takes. However, with climate-related events becoming increasingly frequent, the company may face challenges from unfavorable circumstances.
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