Shares in TUI (LSE: TUI) fell by another 6% on Thursday morning after the company reported a €1.5bn loss for the three months to 30 June. TUI’s share price has now fallen by 65% so far this year. Management says it doesn’t expect trading to return to normal until 2022.
However, bookings for next summer are surging ahead and TUI should now have enough cash to get through the winter. I’m pretty certain this German group will survive.
Indeed, I think the picture could look much brighter in a year. If I’m right, now could be a good time to take a fresh look at TUI shares.
The story so far
TUI’s share price collapse isn’t surprising. Widespread lockdowns and travel bans meant revenue fell 98% to just €75m during the three months to 30 June. Revenue during the same period last year was €4,745m.
Despite cutting costs by more than 70%, TUI still made a loss of €1,460m during the third quarter.
Things are still difficult now. Although national lockdowns have been relaxed, changing quarantine requirements and local lockdowns are making holiday planning difficult. Many people are staying at home. TUI has still only sold 57% of its reduced capacity for this summer.
However, the picture looks much brighter for next year. TUI says holidaymakers are rebooking trips that had been cancelled and reserving new holidays for next summer. The company says summer 2021 bookings are currently up by 145%, with average prices up 9%.
TUI share price rebound?
As Europe’s largest travel operator, TUI has a lot of market reach. But the group’s business model means it also has a lot of costs. Direct ownership of high street stores, hotels, cruise ships and airlines means it’s hard to change capacity at short notice.
To address these issues, it plans to cut its annual costs by 30%. “A comprehensive review” of all the group’s activities suggests to me many areas will be trimmed and some will be chopped altogether. I suspect this will include some hotels and many of the group’s high street travel agencies. Boss Fritz Joussen has already said he plans to speed up plans to move operations online.
These changes will unfold over the next year. If early results are positive, I think the TUI share price could benefit. But I wouldn’t buy this stock for a quick flip — the shares could stay depressed for a while as investors wait to see how the group’s financial situation develops.
TUI isn’t going bust
TUI has now received €3bn of loans and financial support from the German government. This means the group now has €2.4bn of cash available. This is expected to give it the breathing space needed to get through the winter and return to profitable trading next year.
I think we can be certain it won’t go bust. But these loans have left the group with a hefty debt pile and restrictions on dividend payments. I think Joussen will target some kind of refinancing next year, which could include issuing new stock.
I suspect TUI’s share price will stay low for a little longer yet. But the firm has lots of valuable brands and great scale. It might make sense to buy a few shares today and forget about them for a while.
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Roland Head 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.