Holiday company Tui hit by Brexit uncertainty and 737 Max grounding

‘All markets are trading on lower margins,’ says Europe’s biggest holiday company

Europe’s biggest holiday company is being badly affected by the grounding of the Boeing 737 Max, as well as uncertainty over Brexit.

In its results for the six months to the end of March 2019, the Anglo-German firm reported a 77 per cent increase in the usual underlying seasonal loss, up from €170m (£148m) to €301m.

The company says demand is weaker because of the “knock-on effect” from the summer 2018 heatwave, with some holidaymakers apparently banking on a repeat.

Tui is heavily committed to accommodation in Spain, where there is overcapacity because of a shift in demand to eastern Mediterranean destinations – primarily Turkey.

The firm also blames “continued Brexit uncertainty” for diminishing demand among British holidaymakers.

The result includes the initial impact from the Boeing 737 Max grounding, which began in mid-March after a second fatal accident involving the new aircraft type.

Tui Airways is the leading UK operator of the aircraft type. It has a total of 15 across Europe, with an additional eight due to be delivered.

The holiday firm predicts its full-year profits will be down by one-sixth if the troubled aircraft type is able to fly again from mid-July, or cut by as much as a quarter if the “measures taken in relation to the grounding are extended to end of summer 2019” – through to October.

The company estimates the costs incurred for chartering in aircraft and other measures to deal with the grounding will range from €200m to €300m.

Tui has not increased capacity for summer 2019, but its programme is selling slower than a year ago; 59 per cent of the total programme has been sold compared with 62 per cent at this time in 2018. The average selling price is up by 1 per cent, but the firm says this increase “is not at a sufficient level to cover cost inflation”.

“All markets are trading on lower margins,” it says.

Political concerns across the world are affecting demand. In France: “The gilets jaunes protests drove negative consumer sentiment.” In North America, Tui reports, “demand from US customers for Mexico was softer, as a result of border tensions and safety concerns”.

Many of these factors had been flagged in advance and Tui’s share price rose by 3 per cent in early trading. At €9.52, though, it is less than half the price a year ago.