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StockBeat: Tui, the Systemically-Relevant Package Tour Company

Stock Markets Aug 13, 2020 05:28AM ET
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By Geoffrey Smith 

Investing.com -- After its massive bailout of Lufthansa, the German government is moving ever closer to taking a stake in Tui (DE:TUIGn), the world’s largest tourism company, evidently panicked by the inability of another big employer to support itself through the crisis.

The latest injection of state money enabled Tui to present a quarterly report on Thursday that still talked of a year of transition to a rosy future by 2022. But the reality is that without the support, the company would be unviable, and another 70,000 people would be hitting the jobless rolls sooner rather than later.

Berlin is injecting a total of 1.2 billion euros ($1.42 billion) into the group, only four months after lending it an initial 1.8 billion euros. Of that, 150 million euros is in the form of a bond that the government can convert into a stake of 9% in the group. A further cash call on current investors also seems possible, after the group said Thursday that it will “evaluate options to achieve the optimal balance sheet structure to support the business over the longer term.”

The package just about covers the 1.1 billion euros that Tui lost before earnings and taxes in the three months through June, the third quarter of its fiscal year. Revenue fell 98% (sic) as customers across Europe were forced to cancel their vacation plans. To add insult to injury, the company also lost 189 million euros on fuel and foreign exchange hedges. 

After that, surely, the only way is up, at least in the short term. As of today, it has total liquidity and available facilities of 2.4 billion euros. The existential risk to Tui’s business is – if not quite banished – then at least deferred. And bookings for next year are 145% up on year-earlier levels, a sign that the desire for holidays is still very much alive.

It will, however, be interesting to see whether the group hits its target of a cash breakeven in the current quarter, given the uneven progress in reopening Europe’s economy in time for the summer tourism season. Bookings are down 81% and average selling prices down 10%. Its cruise ships are still anchored and many of its planes are still grounded. Only this week, Tui had to expand its suspension of U.K. flights to Spain to include the Canary and Balearic Islands due the resurgence in Covid-19 cases, having already stopped flights to mainland Spain.

CEO Fritz Joussen said in the company’s release that he’s targeting a “transitional” fiscal year starting in October, with a return to a new, leaner normal in fiscal 2022. He told German state television on Wednesday that “the business model is still intact.”

Well yes, if your model can confidently assume over 3 billion euros of government aid and the likelihood of more good money being thrown after bad to space out the likely job losses. The 8,000 already announced are certainly not the last.

Tui shares, which hit a one-month high on the back of the rescue announcement on Wednesday, fell 5.1% on Thursday as the scale of its financial challenges became evident. The DAX fell 0.1% but remained close to its pre-pandemic high.

StockBeat: Tui, the Systemically-Relevant Package Tour Company
 

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