TUI seeing a rush for the sun

Europe’s biggest tour operator said it continues to see “very strong” trading momentum in the UK despite a 4 per cent increase in its average summer prices, as holidaymakers seek to avoid another washout.

TUI has also increased its summer capacity in the UK market by 3 per cent.

Strong sales in the UK and Nordic region helped its core business increase summer bookings by 2 per cent, offsetting weaker performances in France and Germany.

It has sold almost half its summer holidays across its mainstream holiday business.

Mexico was one of the most popular destinations, said a spokeswoman.

The group, which also owns brands including First Choice, Gulliver Travel and LateRooms.com, said demand was driven by its online business and direct distribution – with online accounting for 40 per cent of its sales in the UK.

The company said: “This is against a backdrop of uncertainty in the eurozone, highlighting that demand for the annual holiday remains resilient against a weak macro-economic environ- ment.”

TUI Travel has 54 shops in Yorkshire – 51 Thomson and three First Choice.

Peter Long, chief executive, said: “We have a clear roadmap for growth built upon a deep understanding of our industry and customers.

“Our strong operational performance over winter means we will deliver reduced winter losses.

“This very strong trading has continued into summer 2013, leaving us well placed to achieve a full-year performance towards the upper end of our growth targets.”

TUI’s strong trading comes amid a turnaround battle at rival Thomas Cook, led by new chief executive Harriet Green, the former boss of Leeds-based Premier Farnell.

This involves more than £400m of cost cuts, axing 2,500 jobs or 16 per cent of its 15,500-strong UK workforce and closing 195 high street travel agencies.

Sales in TUI’s core winter business ended down 4 per cent, with flat trading in the UK and a 30 per cent fall in France, helping it narrow winter losses. TUI’s UK winter capacity was flat on a year ago, while it cut capacity in France by 33 per cent.

It expects 7 per cent-10 per cent growth in underlying annual operating profit.

Shares in the tour operator gained 6 per cent as the strong trading defied a bleak outlook for the eurozone.

Analysts at Credit Suisse said the maintained, but not accelerated, market share has a “positive read-across” for the recovering Thomas Cook.

But Citi said TUI appears to be taking market share as Thomas Cook and other competitors reduce capacity.

“We retain our ‘neutral’ recommendation and continue to prefer TUI or Kuoni in the travel operators’ sector,” added Citi analyst James Ainley.

Analysts at Numis moved their recommendation to ‘add’ from ‘hold’. “The poor weather across much of Europe is clearly providing a helpful tailwind but we believe it is also increasingly apparent that TUI’s strategy of focusing differentiated and exclusive product is paying dividends,” said Wyn Ellis at Numis.

Analysts at Panmure Gordon sounded a cautious note.

“We think trading will likely get tougher from here particularly in the UK as the weather improves – hopefully! – and the group laps tougher comparatives in the lates market,” said Simon French.

“We still have concerns about rising fuel costs and the weaker sterling on cost inflation for 2014.”

Panmure reiterated its ‘hold’ valuation. Earlier this month the group’s Thomson Airways unit was forced to switch customers to its Boeing 767 aircraft after Boeing had failed to give it a new delivery date for its first 787 Dreamliner jet. It did not give an update on the situation yesterday.

Shares in TUI Travel, which have risen 35 per cent in six months, closed last night at 322.80p, a rise of 12.40p.