Package tour operator TUI Travel has enjoyed a late surge in winter holiday bookings, but summer bookings for North Africa have fallen off a cliff, especially in France.
"Summer 2012 volumes have improved in all key markets since our last update," revealed Chief Executive, Peter Long. "We are pleased with the development of bookings and pricing in the UK, where we continue to out-perform the market and have a strong performance in online sales," he added.
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Winter programmes across all markets are almost fully sold, with load factors ahead of the prior year and the group is enjoying a surge of late bookings.
Bookings in the core UK mainstream business are down 8% year-on-year (yoy), compared to a 10% drop-off announced at the beginning of February. TUI has reduced capacity by 9% in anticipation of rising unemployment levels and the harsh economic climate choking off demand.
The average selling price in the UK mainstream business is up 4% on the corresponding period of the previous year.
For the Northern Region as a whole (i.e. UK plus the Nordic countries), bookings are down 3% yoy, while the average selling price (ASP) is up 3%.
For Central Europe, bookings are down 1% but the ASP is up 3%. In Western Europe, bookings are up 5% and the ASP is 1% higher.
While winter bookings have been going well on all fronts, the situation was a bit more mixed with the summer season bookings.
Cumulative bookings in the mainstream UK business were down 6% yoy, a slight improvement on the 7% decline seen at the end of January. Offsetting lower bookings, the ASP is up 8% yoy in the UK.
For the Northern Region as a whole, bookings are down 6% but the ASP is up 7%.
In Central Europe, both bookings and the ASP are up 1% yoy, while in Western Europe bookings are down 5% and the ASP is flat.
Trading in France, however, remains difficult where bookings for North Africa are weaker than originally anticipated. TUI has seen a 17% decline in bookings from French customers, a deterioration from the end-January position, when bookings were down 13% yoy.
The group is largely hedged for the current year against both fuel price and exchange rate fluctuations.
"Demand for our differentiated product continues to increase and we remain confident in the flexibility of our business model to match profitable demand and deliver clear self-help measures through the business improvement programme," the company said.
Broker Peel Hunt rates the shares a "sell" but said the second quarter update was reassuring, though it notes the risks remain high.
"Trading is broadly as expected and on the whole reassuring. However, we do feel the risk in the lates market remains high. Also, despite £0.7bn of restructuring/integration costs over the past four years, margin progression remains stubbornly slow. For these reasons we see more attractive situations elsewhere in the leisure sector," said Peel Hunt analyst Nick Batram.
"Management is doing a good job in a difficult market but we continue to see significant downside risk to forecasts as we move towards the late summer booking market," Batram added.
Broker Jefferies is a fan of the stock, however, and reckons TUI Travel is continuing to leave its rivals trailing in its wake.
"While the economy remains tricky we continue to stress that profits are generally independent of the level of the economy and, as such, TUI is a safer haven than many investors realise," claims Jefferies analyst Jason Streets.
"TUI reported that the UK winter season ended with strong demand in the lates market, with better yields and load factors and that all round it outperformed. This is robust stuff," Streets proclaims.
"TUI also makes the point that 90% of its UK summer business is now direct sell and that half of that comes through online. This is a business that is well shaped for the future of the holiday market. The other big stress - differentiated product - is also proving its worth with fully 63% of UK summer bookings falling into this category and 78% in Scandinavia," Streets added.
The broker acknowledges that France is still a fly in the sun-tan lotion but says the French operations are being substantially restructured.
"We still expect France to improve on last year but be seriously loss making. On the other hand we do not expect it to be loss making for ever and so investors should be wary of putting those losses (c£45-48m) on a full multiple," the broker advises.
The sort term verdict on the figures was negative, with the shares taking a dip at 193.2p, down 4.2p, towards the end of trading.
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