Tour operator ‘optimistic’ about rebound in European tourism

Tui said it is more optimistic about a European tourism rebound spurred by looser travel curbs and diminishing rates of coronavirus infection, even as it signalled potential turbulence in the months ahead.

The world’s biggest tour operator said on Wednesday that a pick-up in demand is “clearly evident”, with reservations doubling in April. Still, the Hanover, Germany-based company now sees revenue declining in the fiscal year through September after a delayed start to the summer season.

Tui is counting on a surge in bookings to revive cash flows after suffering a €1.3 billion loss in the first half through March. Chief executive Fritz Joussen said a reopening of leisure travel from the UK will help but doesn't go far enough, while the company could face challenges refinancing some €4.6 billion in debt maturing in fiscal 2022.

Jefferies International analyst Becky Lane said in a note that the revenue guidance was disappointing and that Tui faces "short- to medium-term liquidity risk and balance sheet risk beyond that".

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Slumping

The shares fell as much as 5.2 per cent and were trading 2.3 per cent lower at 418 pence as of 9.51am in London, where the company has its main listing. The stock is up 45 per cent this year after slumping 52 per cent in 2020.

Confidence in a travel revival has been partially rekindled by Britain’s move to restore foreign holidays from May 17th following the success of its Covid-19 vaccination programme.

Mr Joussen said UK bookings to Portugal surged 182 per cent last weekend after it was listed among 12 destinations with no required quarantine for travellers returning to Britain, though he said the exclusion of Spanish holiday islands in particular was disappointing.

"People are booking into Portugal but it's not a big destination for us," the CEO said on a media call. "Spain and Greece were needed. Majorca is at the same level of infection as the UK so where is the problem?"

Some Britons may now seek to rebook for later in the year or 2022, extending a trend that has reduced group-wide bookings this summer to 2.6 million from 2.8 million in March. As of May 2nd, levels were down 69 per cent compared with 2019.

The EU is meanwhile trying to get its vaccine passport system running by the end of June, prompting Tui to stand by plans to offer 75 per cent of its 2019 capacity in the peak months of July through September. Germans are already able to holiday in Majorca and the Canary islands after the lifting of a general travel ban, and Tui Cruises has resumed operations.

Solvency

The company said its solvency could be jeopardised if it can’t obtain further debt-covenant compliance suspensions for a test period ending September 30th, while loans from Germany’s KfW fund and revolving credit facilities will also have to be refinanced in the following year.

There is risk that “an extension of the existing financing or further government support measures will therefore be necessary”, it said.

Tui in December saw its rescue funding reach €4.8 billion after securing a third tranche of aid from Germany and cash from private investors. Since then it has also raised €400 million in a convertible bond issue.

Mr Joussen said the bond was “an important first step” in addressing Tui’s capital structure and that “a good summer season will help with refinancing measures”.

He suggested more fundraising is possible. The group has shareholder permission to issue up to €2 billion in convertible bonds and more than €600 million in new equity. Liquidity stood at €1.7 billion on May 7th.

– Bloomberg