The TUI (LSE:TUI) share price is down 4.6% today in what is a sea of red in the stock market. This compounds a 50% fall in the past year. While a lot of the attention around the travel sector is focused on the likes of IAG and easyJet, TUI is a more diversified tourism operator. As well as its flight division, it generates revenue from hotels, cruises and other holiday add-ons. Could this spread of operations help the TUI share price recover?
Problems over the past year
The business has been hit in several ways in the past 12 months. The hangover from Covid-19 was still apparent until fairly recently, with self-isolation requirements and travel restrictions limiting the ability to travel abroad.
Even with most of that being lifted earlier this year, other problems have beset the travel and tourism sector. Core commodity price increases due to the war in Ukraine have caused jet fuel to be very expensive. This reduces profit margins on flights.
We’ve also seen a rapid inflation increase, causing many to rethink a package holiday in Europe in favour of a local UK-based trip that’s cheaper.
TUI specifically has also struggled with cash flow and management of finances. This means it needed to raise additional capital in January and October of last year. These weren’t small amounts either, the raise in October was to the tune of €1.1bn!
All of the above reasons have been contributing factors that have dragged the share price lower over this period.
Future implications for the TUI share price
The shares are down 69% over the past three years and revenue has fallen 75% over the same period.
With this correlation being strong, it’s logical to think that if the business can grow revenue in the coming year and beyond, the price should lift as well. The latest quarterly results last month did offer some green shoots. Revenue was €4.4bn, up significantly from the €649m in the same quarter last year.
The hotels and resorts arm was profitable, as was the broader holiday experiences division. The biggest loss-making area continued to be the airline. This indicates to me that if flight capacity continues to improve, group finances as a whole will benefit.
My concern is that even with growth at the top level, overall profitability is still non-existent. TUI lost €331m in the last quarter, and it can only run on debt and raising new capital for so long. I think it’s going to take a while before the business is back to health.
Were I forced to invest in the travel and tourism sector, I’d consider investing in TUI. However, I’m not restricted in this regard. So I think there are much more exciting sectors at the moment that have more growth potential with lower risk. On that basis, I’m going to save my money and invest it elsewhere.
