2020 was another challenging year for the TUI (LSE: TUI) share price. The holiday travel firm seems to have had some rotten luck these past few years, with freak weather throughout 2018, the grounding of 15 of its Boeing 737 Max aircraft in 2019, and then a global pandemic.
After all this chaos, the share price is now around £3.80, down 65% from its £11 high three years ago. But is the stock about to bounce back? Let’s take a look.
Can TUI survive the pandemic?
In my opinion, TUI’s fate is directly linked to the success of the vaccine rollout. Until borders begin to open, and the general public feels safe enough to travel, the business’s planes will remain on the ground.
Unfortunately, even when planes aren’t flying, they still incur costs such as airport charges and mandatory maintenance expenses. Therefore, as there was no significant revenue, TUI suffered a £2.8bn (€3.2bn) loss last year. What’s worse is that the firm’s balance sheet was already less than healthy before the pandemic began.
But management has taken action. The dividend has been suspended, and a new cost-cutting initiative was launched to save an estimated £355m (€400m) per year. It also secured an additional £232m (€260m) through sale-leaseback agreements, as well as raising £1.6bn (€1.8bn) of capital from a collection of banks, major shareholders, and the German Government.
Combined, TUI should have sufficient funds to see it through the remainder of the pandemic. Of course, this assumes that lockdowns get lifted as more people get vaccinated.
Will the TUI share price recover?
The raised funds undoubtedly gave it some breathing space. But it also brought its total debt to nearly £6.8bn (€7.7bn). Furthermore, this new financing package prevents the return of dividends until 2022, while simultaneously dropping the firm’s credit rating. As a result, the TUI share price fell by a further 20%.
But there might be a light at the end of the tunnel. Before the outbreak of Covid-19, TUI actually started 2020 with record high bookings, and the share price jumped 25% in early February. While most of these trips ended up being cancelled, TUI recently announced that 2021 bookings are up by 145%.
I think it’s fair to say that many people want a holiday after more than nine months of lockdowns. And with that comes the potential for a stock price recovery.
TUI share price: bargain or trap?
If the vaccine rollout is successful, then TUI appears nicely positioned to take advantage of the pent-up demand. However, even if things return to normal, the stock now has a lot more debt to deal with. That means larger interest payments, more capital restrictions, and lower dividends.
Personally, I’m not interested in buying shares since the recovery timeline is unknowable, and frankly beyond the management team’s control.
With plenty of other fantastic businesses out there, I would rather invest my money in a stock that isn’t suffering from such huge problems.
