European travel company TUI has said that an exceptional number of holiday bookings will help to offset the Boeing 737 MAX grounding's impact on its annual profit, enabling it to lift the bottom end of annual earnings guidance.
TUI is benefiting from the failure of rival travel company Thomas Cook, which is helping it to pick up new customers and gain market share, but at the same time it faces headwinds from the MAX grounding as it has to pay to lease other planes.
The company said that for the 12 months that ended on September 30, 2019, it now expects underlying core earnings (EBIT) to be in the range of €850 million to €1.05 billion. It had warned in December that MAX costs could drag annual earnings down to €680 million in a worst case scenario.
TUI said that the UK recorded its best ever January in booking terms.
"January this year was very, very strong," chief executive Fritz Joussen told reporters on a call.
The company grew first quarter earnings in its markets and airlines business by 14%, helped by adding new airline capacity and as it contracted hotels which had formerly served Thomas Cook in destinations like Turkey.
Joussen said that fears about the spread of the coronavirus are not impacting customer demand for holidays, but added that that is partly because European customers do not tend to book holidays to Asia at this time of the year.
Max Woes
The Boeing 737 MAX was grounded last March after two crashes killed 346 people, and the aircraft is not expected back in service until at least mid-2020.
TUI said that an extended grounding period is now expected for the rest of its financial year, estimating that that will cost it between €220 million and €245 million, compared to the €220 million to €270 million cost of which it had warned in December.
It said that its updated annual profit guidance includes a "certain level" of compensation that it expects to receive from Boeing this year, but there are questions over how this will be structured.
"There will be compensation from Boeing but it is a matter of negotiation and a matter of mutual agreement, how much is paid in cash, how much is paid in future deliveries, how much is credit notes," Joussen said.
The €220 million to €245 million hit from the MAX comes on top of the €130 million cost for this financial year, which had already been flagged by the company in December.
News by Reuters, edited by Hospitality Ireland. Click subscribe to sign up for the Hospitality Ireland print edition.
