Prospects
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Overall, economic growth is expected to slow down slightly in the current year, although worldwide expansion continues at a considerable pace with an upward underlying trend. Worldwide economic growth has been overshadowed by the sub-prime crisis in the US. The economic trend has also been impaired by the surge in prices, in particular for crude oil and foodstuffs. In the Eurozone, the appreciation of the single currency has had a further damping effect. Nevertheless, the economy will continue to grow in that region, too, with experts expecting growth rates to remain below the long-term trend. The emerging markets have primarily been affected by the weakening of economic activity in the industrialised countries through their foreign trade operations, but have this far shown substantial production growth.
Tourism
In the first quarter of 2008, the activities pooled under TUI Travel benefited from restructuring measures initiated or implemented in previous years and stable demand in the travel market. The overall reduction in capacity in the Mainstream sector caused enhancements in occupancy and margins. This trend is expected to continue in the next few months. For the current winter season, booked turnover was up 5%, with customer numbers on previous year’s level. Bookings for the 2008 summer season are up 4% year-on-year while customer numbers are stable. TUI Hotels & Resorts and cruises also matched expectations for the overall year 2008 with their positive performance in the first quarter.
Following the completion of the first quarter, earnings (underlying earnings before interest, taxes and impairment of goodwill [underlying EBITA by divisions]) showed the following trend for the 2008 financial year:
The tourism entities TUI Travel, TUI Hotels & Resorts and Cruises expect earnings growth for 2008. The key earnings drivers in TUI Travel are the expected synergies from the merger between TUI and First Choice, margin improvements due to the capacity and product-related measures initiated in the Mainstream sector and further growth in the Specialist Holidays, Activity Holidays and Online Destination Services sectors. TUI Hotels & Resorts is planning further increases in bed nights, driven by the expected positive trend in long-haul destinations and the eastern Mediterranean. Cruises expects gratifying demand for cruises and a stable political framework in the destinations.
Central operations
From today’s perspective, central operations will not fully match the previous year’s figures despite the savings generated due to the positive effects of the measurement of foreign currency transactions included in 2007 figures.
Discontinued operation
The current earnings situation in shipping in the first quarter of 2008 was characterised by a significant increase in freight rate levels compared with the first quarter of 2007. Transport volumes, in contrast, still fell short of expectations in the first quarter due to a weakening of the Chinese export market – as the crucial factor for Far East and Trans-Pacific transports – and a decline in domestic demand in the US. In this context, risks for the overall year include risks related to the aftermath of the sub-prime crisis on the development of world trade, which cannot yet be finally assessed. On the other hand, the earnings situation will also be affected by the development of shipping bunker prices. The bunker price continued to rise in the first quarter of 2008. Besides these factors, the development of earnings by container shipping will also be impacted by the further development of the US dollar exchange rate against the euro.
Continuing operation/Group
Overall, the Executive Board expects a significant increase in turnover in the 2008 financial year for the continuing operations (tourism and central operations), essentially attributable to the first-time consolidation of the activities of First Choice for a full year against the background of capacity reductions. Based on the earnings target for TUI’s former tourism entities, the Group expects further substantial growth in earnings by tourism, taking account of the expected future profit contributions of the former First Choice entities and initial synergy effects. Earnings by tourism will also essentially be affected by the increase in energy prices and the further development of the British pound sterling against the euro. From today’s perspective, a final assessment of the development of Group earnings is not possible at this point in time due to the planned separation of container shipping.