The past couple of months have not been too kind to the TUI (LSE:TUI) share price. In fact, since the start of May, the stock is down by more than 30%. Although it’s worth noting that over the last 12 months it has managed to climb by around 35%, despite its recent lacklustre performance.
But following its latest results, is the travel firm set to make an explosive comeback? Let’s take a closer look.
The TUI share price vs progress
Despite what the share price would indicate, the company has made some significant strides towards returning to pre-pandemic operational levels. Looking at its interim management report, revenue for the third quarter of 2021 reached €649.7m. That’s up from €71.8m a year ago. And is mainly attributable to the surge in customer departures.
Now that travel restrictions are beginning to ease, many people are off on a long-overdue holiday. And after 18 months in confinement, I think that’s pretty understandable. As a result, TUI provided holiday travel to a total of 876,000 customers in the last three months. And that’s up from 159,000 just three months prior.
Needless to say, this is fantastic news. And providing revenues continue climbing back to pre-pandemic levels, the TUI share price should be rising again. So why isn’t it?
A long road ahead
As encouraging as the surge in passenger numbers is, TUI is not out of the woods yet. Due to the relatively fixed-cost nature of its operations, profits are still nowhere to be found. Underlying earnings continue to be in the red. Although I think it’s worth noting that they have improved.
Consequently, the management team is having to burn through existing resources to keep the lights on. Suppose the travel numbers cannot rise fast enough? In that case, earnings will likely remain in the red, and the company’s financial health could become compromised.
This has created a good measure of uncertainty among investors, especially since Covid-19 infection rates are climbing again. Should travel restrictions be reintroduced, the entire sector will suffer a significant blow. And TUI, along with its share price, won’t be an exception.
Assuming that travel restrictions don’t make a comeback, it seems to me that the worst may be over for TUI’s business. The firm does have a substantial amount of debt to contend with. However, management successfully negotiated an extension to the maturity date of its revolving credit facility by a further two years. And also secured waivers on its loan covenants until March 2022.
This undoubtedly provides some breathing space. But having said that, this isn’t a business I’m personally interested in owning. While the TUI share price may be able to make a full recovery over the long term, I think there are far better investment opportunities to be found elsewhere.
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Zaven Boyrazian 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.