TUI (LSE: TUI) has revealed details of a new €1.1bn capital raise. When easyJet (LSE: EZJ) did something similar in September, its shares slumped. But the TUI share price has dropped just a modest couple of percent.
The easyJet share price has had the better run since late 2020, though. It was well ahead of TUI before its sharp September dip. And even afterwards, it’s still up 26% in the past 12 months, while TUI has managed a more modest 9%.
TUI also released a Q4 update, which I think will have helped reassure investors. After the €1.1bn capital raise, the company now has cash and available facilities of €4.5bn.
With better-than-expected cash flow in the fourth quarter, the firm reckons it has achieved a pro-forma gross debt reduction from €8.7bn to approximately €6.5bn.
People taking TUI holidays in July and August doubled over the same period a year ago, to 2.6m. That is against a very depressed period last year, however. Still, in recent weeks, summer bookings in Germany and the Netherlands have been ahead of 2019. That’s good, but it will take a bit longer before we know if it’s sustainable, and how much is one-off pent-up demand.
Winter bookings are “trending strongly” in the UK since the government announced its plans to end the traffic light system and ease up on travel restrictions. To me, this all sounds like significant progress in getting TUI back to sustainable profit and a healthier long-term outlook. It does all depend on there being no further Covid deteriorations, mind, and that’s possibly the biggest risk right now.
easyJet share price fall
The easyJet share price, meanwhile, fell 5% in Wednesday morning trading. I did think news of TUI’s bookings pick-up might have spread a little cheer across travel-related businesses. Still, the weakness could just be down to a general poor day in the markets. International Consolidated Airlines shares dipped 4% too, with Ryanair dropping a similar amount.
All these falls are worse than the FTSE 100, down a bit less than 2% at its lowest point in the morning. So the travel and aviation business in general is having a poor day.
Results in November
I fear the easyJet share price might go nowhere until we see full-year results on 30 November. That will take us to the end of September, so we’ll know if the company’s traffic has echoed the bookings progress at TUI. The latest traffic statistics we have from easyJet are from June.
If we do see evidence of an uptick in business now that flying regulations have been eased, I reckon the share price could get a timely boost.
What will I do? I’ve been following the travel business for some time, looking for genuine signs of improving business. I just won’t buy into a potential recovery situation until I see that. And my feeling is that now could indeed be a good time to invest in easyJet and TUI.
I’m still seeing too much downside risk to do so myself. But if I had to choose between them, I think I see lower risk in TUI.
Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.