In an article I just wrote on the coach operator National Express, I say that it is better placed than some other travel stocks. One reason for this is its relatively healthy financials. This is in stark contrast to the stock under consideration here, the German tourism group TUI (LSE: TUI).
TUI reports weak results
TUI just released its results for the first half of its financial year ending 31 March 2021. As expected, it looks like it is in a precarious position. It has reported an 89% fall in revenue and an 84% increase in losses from the first half of last year. It was hit by the pandemic across all segments, but cruises were the worst affected.
Investors have reacted negatively, as evident from a 2% fall in the TUI share price in today’s session so far. But considering the difficulties the company is still in, I think the extent of the fall is contained.
This could be because a poor result was already expected. And also, because the future looks brighter. As vaccinations progress and people can travel more freely, tour operators like TUI may see a rise in demand again.
It already expects to carry some 2.6m customers in its summer programme. But the real increase is only expected to come through next year. For summer 2022, TUI expects UK bookings to be up by 293% from 2019 levels.
What is next for the TUI share price
I think it is exactly this anticipation that has driven up TUI’s share price so far, which is up 162% in a year.
But at a level of around 420p, the share price is still a far cry from its pre-pandemic levels. This to me suggests that as its performance starts improving through 2021, investors could be encouraged to buy the stock. This in turn could improve its share price further.
But I am not certain that this scenario will play out.
Another cruise operator, Carnival, just cancelled most of its planned sailings for 20 of its 24 vessels for the period up to the end of July. Until last week, its cruises were paused up to the end of June. Concerns about getting regulatory approval because of the pandemic are the reason for this change.
To me, it also suggests that these cancellations could be extended beyond July. In other words, it is possible that leisure travel may take longer than we presently anticipate to swing into action.
And that could have a negative bearing on the TUI share price as well.
My takeaway
I think moving forward, the TUI share price will respond to a combination of factors. On one hand, its financials look dismal and news from Carnival is disappointing too. But a stock market rally is underway too and investors have extended bullishness to TUI as well. The pandemic has also been controlled to a great extent. The TUI share price may or may not rise higher.
I find it risky at present. I would wait for concrete signs of its revival before buying TUI.
