51
Direct actionHow is House of Fraser
faring a year after the
Mike Ashley makeover?Brexit, Boeing and blistering weather have
conspired to put Tui on course for trouble
In what feels like an increasingly vol-
atile world, it wasn’t long ago that
Tui was steering a smooth course
through the ups and downs of the
tourist trade.
While its rival Thomas Cook went
from one mishap to another , Tui,
which traded as Thomson in the UK
until 2017 , kept reporting solid results.
It seemed to have got its strategy right
by owning its own hotels, airline and
cruise ships instead of packaging
others’ together for slim margins. It
bought extra ships to meet boom-
ing demand for cruises and became
adept at selling its customers “expe-
riences”, such as a visit to a ruin or a
water park.
As recently as December, Tui
reported earnings up 10% or more
for a fourth consecutive year and was
confident about its prospects. But
after two profi t warnings this year,
investors are braced for bad news
when the Anglo-German tour oper-
ator reports third-quarter results
on Tuesday.
The first profit warning was in
February. Demand for holidays weak-
ened as consumers, still reeling from
the boiling-hot summer of 2018,
held off booking foreign trips. Many
of those who did plan to travel opted
for Turkey and north Africa, leaving
the company with too much capacity
in Spain. The weak pound also made
it more expensive for Tui’s tour busi-
ness to buy holidays in sterling.
When Tui issued a second warn-
ing in March, the problem was the
grounding of Boeing’s 737 Max after
two fatal crashes. Tui’s fl eet of about
150 aircraft included 15 of the 737
Max, with eight more due to start fl y-
ing in May. The company estimated
the cost of the grounding, including
leasing replacement planes, at about€300m (£280m) if the Max stayed on
the ground till the end of the summer.
In that scenario, underlying annual
earnings would be 26% less than the
€1.18bn it made in 2018, it said.
Airlines have since signalled the
planes will not be fl ying any time
soon and there are doubts if the 737
Max will go back into service at all.
Ian Forrest of online stockbroker
the Share Centre, said: “People willwant to hear more from the company
about what their current estimate is
[for the 737 Max grounding] because
the situation is shifting all the time.”
The grounding has reverber-
ated throughout the travel industry.
Ryanair has curbed expansion plans
as a result and has said it may shut
some airport bases.
If things weren’t bad enough,
Brexit is hitting consumer confi dence,forcing travel companies to battle for
bookings and sending prices down.
Tui’s shares have lost almost half
their value in the past year and with
an unusually high dividend yield
of about 8%, the payout looks to be
under threat.
Forrest said: “Hotels and cruises
should still be a positive, but things
are changing so much that it’s hard
to know what to expect.”Beset by unfortunate
events, the once-serene
travel operator is likely
to reveal bad quarterly
results this week,
writes Sean Farrell
Agenda
Postscript Vital statistics
The economy contracted in the sec-
ond quarter of 2019, raising concern
that the UK is heading for a reces-
sion. Brexit uncertainty, car plant
shutdowns and the depletion of
stock accumulated before the origi-
nal Brexit deadline in March caused
output to contract by 0.2% in the
three months to the end of June. It
was the fi rst time the economy had
shrunk for six-and-a-half years.
Harland and Wolff , the shipyard that
built the Titanic, went into admin-
istration last week, threatening the
end of centuries of shipbuilding in
Belfast. The business, which dates
back to 1861 , has struggled because
of intense competition from over-
seas rivals. Labour and the Unite
union called for the company to be
nationalised. The yard’s 130 workers
have been laid off.HSBC took the City by surprise
when it parted company with
its chief executive after less than
18 months in the job. John Flint ,
who had worked at the bank for
more than 30 years, left after the
board decided someone else was
needed to navigate diffi cult markets.
HSBC must now fi nd a new leader,
who could come from outside the
company for the fi rst time.Hargreaves Lansdown’s bosses
waived annual bonuses a day before
facing questions about the compa-
ny’s backing for Neil Woodford’s
suspended equity income fund.
About a quarter of Hargreaves’s
customers have money in the fund,
which will be shut until December.
Hargreaves’s results showed that
forgoing fees from clients linked to
the fund would cost it about £2m.Fears of recession as
UK economy shrinks
Titanic shipyard put
into administration
Sudden departure for
HSBC chief executive
Bosses at Hargreaves
forgo their bonuses
$1,500
Gold price per ounce last week,
the highest level in six years as
investors sought safety.£100m
Amount Rolls-Royce has spent
stockpiling parts and preparing
for a no-deal Brexit.Tui’s strategy
of operating
its own airline,
cruise ships
and hotels had
been a factor
in its relative
stability before
this year.
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