TUI Travel (LSE: TUI) performed very strongly last week, beating the index performance of the FTSE 100 considerably. If we pull the timeline back further, over the past month, the share price has rallied from circa 840p to over 1,000p as of close on Friday.
Such performance has led investors to wonder why this has happened, and also whether it is too late to buy into the company for further growth. I think it is down to two factors, outlined below.
Brexit
The spike seen last week was mostly after the news broke about PM Johnson having a very productive meeting with his Irish counterpart regarding Brexit. The Irish border has long been a contentious issue, but there appears to have been some kind of breaking of the deadlock, although this is yet to be confirmed.
The markets jumped on the news, with TUI being one of the main benefactors. This is because, while TUI was merged with a German company, it operates largely in the UK. Any Brexit deal would remove the uncertainty that has been casting a cloud over the UK economy, boosting the firm.
For example, consumers may be more willing to book a flight for a holiday abroad once they have certainty of Brexit trading terms. If they are not worried about saving for a potential job loss or price increases, they will likely revert back to old spending habits, including booking holidays. This would boost TUI revenues in the short and longer term.
Thomas Cook
Pulling the chart back, we can see another big spike in the share price of TUI following the news that Thomas Cook was going into liquidation. Thomas Cook was one of TUI’s main competitors in the package holiday market. This news meant that potential customers from Thomas Cook would look elsewhere to book, with TUI being one of the benefactors.
The boost from a rival going out of business has already been seen, as news broke a couple of days ago that TUI was adding around 2m new seats for next summer. It also announced new routes to be flown to Spain and Turkey, due to the increased demand.
I would mention some caution here. A rival with a very similar business model going bust is certainly a warning over the state of the market, and the UK package holiday market has been shrinking in recent years. This could impact TUI in the future to some degree, although I think it has enough of a diversified presence around the world (180 countries) to cushion this.
Overall, I do not think it is too late to buy into TUI. Firstly, the effect of a Brexit deal has not yet happened, so there is still upside from that factor. Secondly, the impact of Thomas Cook will also take time to filter into its revenues (next summer being the key litmus test) and so I feel there is definite upside from this news as well.
