Anglo-German travel firm TUI (LSE:TUI) has endured a dire year. And with the pandemic raging on, the light at the end of the tunnel is dim.
The TUI share price now sits around £4, which means it has tumbled over 57% in a year. Will the vaccine bring it the respite it desperately desires?
TUI share price tumbles
In its last financial year ending 30 September, TUI accrued a £2.8bn (€3.2bn) pre-tax loss. To strengthen its chances of surviving the crisis, the FTSE 250 firm launched a rights issue, raising £492m (€545m). TUI will use £283m (€314m) of this to reduce its debt. It hopes the rest will be enough to see it through the ongoing lockdown and travel restrictions. The tour operator expects the restrictions will continue until this summer. If this timeframe is extended, then I imagine more help will be necessary.
This latest fundraise is part of a massive financing package worth £1.6bn (€1.8bn) that TUI has in place with a group of banks, major shareholders, and the German government. While shareholders have agreed to this rights issue, unfortunately the TUI share price has tumbled over 20% in response. I think it’s great the company is focused on reducing its debt, but time will tell if that’s going to be enough.
If the vaccine rollout goes well and we lift restrictions by summer, then I think this company will see a surge in bookings. This means its recovery can begin. But that won’t be a quick sprint back to profitability. The company has accrued a massive amount of debt in simply surviving thus far. Estimates show it’s burning cash at a rate of £0.45bn (€0.5bn) per month, which is going to take a long time to pay back.
With pandemic recovery still up in the air, investing in TUI shares undoubtedly carries risk. Along with its considerable debt, the company is hampered by the ongoing cost of maintaining its fleet of aircraft, cruise ships, and over 400 hotels. There’s no dividend to entice shareholders, and I doubt it will be reinstated for at least two years.
British Airways owner and FTSE 100 constituent International Consolidated Airlines Group, (IAG) is another travel company with struggles ahead. These also includes mounting debt. We’re now in the third official British lockdown, which has thrown a spanner in the works of IAG’s vaccine-inspired share price recovery.
IAG has appointed a new company director, Javier Ferran, to replace Antonio Vazquez, who has retired. Ferran will be on a mission to steer the company back into profitable territory. But he’s got an immense job on his hands. The IAG share price is down over 62% in a year. I’m not tempted to invest in either of these travel stocks until the world has a better handle on the Covid-19 crisis.
Kirsteen 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.