TUI Group increases turnover and operating earnings in Q3 2008

TUI Group achieved substantial increases in turnover and operating earnings in tourism, its core business, in the third quarter of 2008. Due to the first-time full consolidation of the turnover portion of First Choice Holidays PLC, turnover by the tourism division grew by around 17 per cent to 6.8 billion euro (previous year: 5.8 billion euro). Operating earnings in tourism (underlying EBITA) climbed by around 15 per cent to 795 million euro (previous year: 689 million euro). Container shipping also recorded a year-on-year increase in turnover of around seven per cent to around 1.7 billion euro in the third quarter (previous year 1.6 billion euro). At 86 million euro, underlying EBITA by the division remained below the previous year’s reference figure (107 million euro). This was primarily due to the oil price-induced rise in energy costs.

Turnover by the Group’s divisions (tourism, central operations, container shipping) grew by around 16 per cent to 8.5 billion euro (previous year: 7.4 billion euro). Underlying EBITA by Group divisions increased by around four per cent to 859 million euro (previous year: 830 million euro). Due to non-recurring items including the effects of ongoing restructuring programmes and one-off effects in tourism as well as a decline in earnings by container shipping, Group profits decreased by around three per cent year-on-year to around 448 million euro (previous year: 462 million euro). Due to the considerable increase in minority interests, basic earnings per share accounted for 1.00 euro (previous year: 1.73 euro) in the third quarter. Although the consequences of the current financial crisis and the resulting possibility of a slowing world economy cannot yet be fully assessed, TUI AG remains confident that a significant increase in operating earnings will be achieved for the overall year 2008.

Detailed development of the tourism division

The tourism division comprises TUI Travel (tour operator, airline, distribution and incoming agency operations), TUI Hotels & Resorts and the cruises sector.

TUI Travel posted substantial increases in turnover and operating earnings (underlying EBITA) in the third quarter of 2008 due to changes in consolidation¹. Turnover by TUI Travel grew by around 17 per cent to 6.6 billion euro (previous year: 5.7 billion euro). Underlying EBITA climbed by around 19 per cent to 689 million euro (previous year: 581 million euro). Operating earnings improved overall, but were impacted by the strong year-on-year decline of the British pound sterling exchange rate.

In the Mainstream sector the programmes initiated to reduce capacity and improve the margin have paid off. Thus, source market Central Europe (Germany, Austria, Switzerland, Poland and TUIfly.com) recorded better margins in the brochure business and an increase in load factors. On the other hand, higher aircraft fuel costs had to be borne. In source market Northern Europe (UK, Ireland, Canada, Nordic countries, First Choice Airways, Thomsonfly, TUIfly Nordic), the UK, the largest market, also achieved stronger pricing due to capacity cuts and the resulting reduction in the level of discounting in the form of last minute offerings. In source market Western Europe (France, Benelux countries, Corsairfly, Arkefly, Jetairfly), TUI’s activities achieved an overall satisfactory performance.

The Specialist and Activity sectors recorded an overall positive development. The Online Destination Services sector reproduced the sound performance recorded by its Online Services segment in the 2007 reference quarter while the performance of the incoming segment slightly declined year-on-year.

In the third quarter of 2008, TUI Hotels & Resorts recorded turnover of 143 million euro, up around 13 per cent year-on-year (previous year: 127 million euro). Underlying earnings totalled 101 million euro, matching the sound level achieved in the 2007 reference quarter. Bed capacity rose by 2.3 per cent in the third quarter. While occupancy declined by 1.4 percentage points, average revenues per bed grew by five per cent.

Turnover in the cruises sector amounted to 51 million euro in the third quarter, down two per cent year-on-year (previous year: 52 million euro). Despite the adverse effects of the oil price-induced rise in operating costs, Hapag-Lloyd Kreuzfahrten reproduced the solid results achieved in the 2007 reference quarter. Due to proportionate start-up costs of two million euro for the new company TUI Cruises, operating earnings by the sector declined overall to five million euro (previous year: seven million euro).

Detailed development of container shipping

In the third quarter, the development of container shipping was characterised by an increase in transport volumes, a considerable rise in freight rate levels and a pronounced weakening of the US dollar as well as persistently high fuel costs. Hapag-Lloyd increased its transport volumes by six per cent to 1.47 million standard containers (TEU) (previous year: 1.39 million TEU). Average freight rates rose by around 13 per cent year-on-year across all trade lanes. The rise in freight rates was particularly strong in the Trans-Pacific trade lane at around 22 per cent and in the Atlantic trade lane at around 14 per cent.

Prospects

Due to the operating performance in tourism and container shipping achieved to date, the Executive Board continues to expect the overall Group to achieve a con-siderable rise in operating earnings for the year as a whole.

Tourism is expected to post a significant increase in its operating earnings level based on its performance in the first nine months. TUI Travel has completed the 2008 summer season with good results. Booked turnover in the Mainstream business was two per cent up year-on-year. Customer volumes decreased by six per cent, on capacity reduced by eight per cent. TUI Travel will continue its strategy of flexible capacity adjustments in the current winter season 2008/2009 and the summer season 2009.

In the current financial year, TUI Hotels & Resorts is recording persistently sound demand for hotel beds in the eastern Mediterranean, the Canaries and long-haul destinations. The number of bed nights is therefore expected to rise year-on-year. On the other hand, destinations in the US dollar region will experience negative effects due to currency movements.

The cruises sector continues to benefit from a positive market environment. Rising fuel costs are offset by stronger average pricing for travel products. For the overall year, earnings of Hapag-Lloyd Kreuzfahrten are therefore expected to match the sound level achieved in 2007. In 2008, the cruises sector will also have to account for the proportionate start-up costs for the establishment of the business operations of TUI Cruises.

Despite a dampening of the overall climate in container shipping, the Executive Board expects a significant year-on-year increase in the earnings level for the 2008 financial year. To date, the earnings situation in container shipping has been characterised by a substantial rise in freight rates with a moderate increase in transport volumes. It remains too early to provide a final assessment of the repercussions of the financial crisis on the development of world trade. Nevertheless, positive earnings are also expected for the fourth quarter of 2008.

For the Group, the budgeted one-off costs of the merger between First Choice Holidays and TUI’s tourism division in the current financial year will result in a considerable variation between reported earnings and operating earnings in 2008.


¹ In the third quarter of 2008, the turnover and earnings contributions of First Choice Holidays were fully consolidated for the first time. In the 2007 reference quarter, the corresponding figures had only included the results for the month of September.