TUI Aktiengesellschaft
http://www.tui-group.com/en/ir/reports/interim_reports_2008/2nd_quarter_2008/prospects/index.html
Prospects

Prospects

In the course of the second quarter of 2008, the world economy consider­ably lost steam. For the second half of the year, experts expect a further slowdown in the growth momentum. Due to the subprime and credit crisis, the US will largely cease to be an economic engine. Alongside the persistent uncertainty in the financial markets, economic activity will be curbed by the negative property effects of falling house and stock prices, high consumer price inflation and the recent continuation of the strong rise in crude oil prices. Economic growth in the industrialised countries is thus expected to continue, but the pace of growth is expected to fall short of the long-term trend. Due to these trends, gross domestic product in the Eurozone is also expected to decline over the next few months. The emerging economies will record a substantial slowdown in the pace of production growth, in particular in the Asian region, a trend also attributable to the inflationary development, above all of foodstuffs and commodities.

According to UNWTO estimates (World Tourism Barometer, June 2008), international tourism arrivals grew by 5% in the first four months of the current year, up by one percentage point against the long-term average. Demand in the travel sector thus proved to be stable despite a deterioration in the economic environment in all regions. For the overall year 2008, the UNWTO forecasts a slowdown in growth in the overall travel market against the growth rate at the beginning of the year, with regional variations.

Tourism

TUI Travel has completed the winter season in line with its expectations. For the current 2008 summer season, booked turnover in TUI Travel’s Mainstream business is 3% up year-on-year, with costumer numbers down by 5% and capacities reduced by 7% year-on-year. In the first half of 2008, the capacity reduction in the Mainstream sector and persistently sound demand for travel products resulted in an improvement in risk utilisation and a lower proportion of offerings reduced in price. The resulting rise in earnings and the improvement of the cost situation benefited the development of earnings. The effects caused by the substantial rise in energy costs in the course of the year were limited by means of hedges and price surcharges. The synergy potential was leveraged according to plan. TUI Hotels & Resorts as well as Cruises also saw their expectations for the overall year 2008 confirmed by the positive performance in the first half of the year.

The development of earnings (underlying earnings before interest, taxes and impairment of goodwill [underlying EBITA by the division]) showed the following trend for the 2008 financial year following the completion of the first half of the year:

The tourism entities TUI Travel, TUI Hotels & Resorts and Cruises expect earnings in 2008 to improve substantially year-on-year. The main earnings drivers in TUI Travel are the expected synergies from the merger between TUI and First Choice, margin improvements resulting from the capacity and product initiatives launched in the Mainstream sector as well as 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 achieve savings and roughly match the previous year’s performance, despite the positive effects of the measurement of foreign currency transactions included in 2007 figures.

Discontinued operation

The earnings situation in shipping in the first half of 2008 was characterised by a significant increase in freight rate levels year-on-year. Transport volumes, in contrast, fell short of expectations in the first half of the year. In this context, risks for the overall year continue to relate to the effect of the crisis in the financial markets on the development of world trade. A final assessment of this risk is not yet possible at this point. Earnings will also be affected by the development of shipping bunker prices. Bunker prices continued to rise in the second quarter of 2008. An additional factor impacting the development of earnings by container shipping will be the further development of the US dollar exchange rate. Despite the strains in the economic environment, we expect earnings levels to significantly rise year-on-year in the 2008 financial year.

Continuing operations/Group

Overall, the Executive Board expects a significant increase in turnover for the TUI Group’s continuing operations (tourism and central operations) in the 2008 financial year, primarily driven by the first-time consolidation of the activities of First Choice for a full financial year. Based on the earnings target for TUI’s former tourism entities, the future expected earnings contributions by the former First Choice entities and initial synergy effects, the Group expects tourism to continue to achieve substantial growth in earnings.

From today’s perspective, a final assessment of the development of Group earnings in 2008 is not possible at this point in time due to the planned separation of container shipping operations from the Group.