Have you booked your summer holiday yet? If so, chances are you’ve gone a bit cheaper than last year. That was the view from TUI boss Fritz Joussen this morning as the travel group reported racking up losses of £73.3 million in the three months to the end of December, up from £32.2 million a year earlier.
Joussen said customers are still looking to get away but there’s a bigger focus on lower prices, bringing down the margins among travel firms. As a result, the chief executive conceded having to take the hit in order to protect TUI’s market share.
Today’s update from the company shows underlying losses widening in its first quarter but investors might have already suspected less than impressive figures after a revision to full-year forecasts last week.
A long, hot summer in 2018 put a lot of us off travelling abroad, prompting TUI to predict fairly flat earnings for the fiscal year ending in September, as well as cutting growth guidance through to 2020. The company also pointed to post-referendum weakness in the pound, making it difficult to improve on margins sold to UK customers.
Investors haven’t taken kindly to the news, with shares now back down to levels last seen in July 2016, and a heavy decline coming after last week’s profit warning. Management will be hoping growth plans including 28 hotel openings and three cruise ship launches in 2019 will renew market confidence.
Consolidation in the space might also be on the cards, driven by increasing pressure on margins. Conversations around selling off non-core businesses or saving on operational cost through mergers could start popping up on board meeting agendas if 2019 becomes as difficult as last year.
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Thomas Cook was forced into making two profit warnings within two months in 2018, saying it would entertain offers for its airline business as a result. Despite Joussen confirming TUI was an “active observer” of the situation no contact has been made as yet.
Is travel the next retail?
Investors might look at the demise of the UK high street and recognise a lot of the same factors in recent updates from the travel sector. Lower consumer spending, weather-induced profit warnings and ageing business models brought down a lot of big names in retail last year, so could holiday companies go the same route?
Well in much the same way that the online-first, capital-light retail firms really started to split the pack in 2018 there is certainly opportunity for innovation to do the same in the travel sector. TUI nodded to this today, highlighting its focus on providing experiences and upselling activities and excursions rather than the simple flight + hotel model, as well as improving its online proposition.
The real success will be whether the company and its competitors can adapt to the new wave of net-native, experience-first travellers or whether this year will see firms do the same as last year but just scale up operations through expansion and acquisition. It could be the year that sees the winners leave the losers in the departure lounge but it depends entirely on who is able to attract an ever more discerning consumer.
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