Tui Revenues Up 757 % – Is The Travel Business Recovering?

Tui AG (LON: TUI) shares are broadly unchanged in London (up 0.3% at pixel time) on the back of the second quarter and half year results. These show that revenues are up 757% for the second quarter, year on year, and the full half year results are up 527% on the previous year.

This is not exactly unexpected as we’ve had some of this information from Tui before now in trading updates. We should be a little careful though. Tui shares actually fell on the back of the Q1 results which were, as here, upbeat.

We all knew that as lockdown ended then the travel business would recover to some extent. That’s just obvious – anyone who has suffered a Northern European winter will understand the dash to get back to the beaches. The questions about profits and therefore shares prices depend upon a couple of more factors though. That some travel will return is obvious, but how much? Further, will the travel and airline companies be putting on the capacity to match that demand?

Both of these could go either way. The first question is what is demand going to return to? Have we – or some or enough of us – got out of the habit of that annual dash to the beaches and cheap booze? That could be true. Or it’s also possible that the business will boom for some years as we catch up with what we’ve been missing. We can make guesses about this but the proof will be in the pudding of what actually does happen.

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Initial indications from Tui and other such travel firms (Easyjet etc) is that the travel volume is returning but the total answer isn’t clear yet.

The other issue is the management’s response to such surges in demand. A problem with either travel or accommodation is that it’s a once only shot – it’s not possible to store or stock unsold items. An empty seat on a ‘plane, an empty room for a night, is a total loss. But it will have had to be paid for. So, margins come not just from rising demand, but making sure that supply matches, as closely as possible, that demand.

This makes travel stocks like TUI an interesting field. For we’re trying to forecast demand to see what revenues might be and also that second derivative of whether management get their own forecast of the demand correct. It isn’t true that a booming season translates into profits that is – it’s matching supply and demand that does.

We don’t need to worry much about the fact that this first half year reports a loss. For these seasonal travel businesses that is normally what happens. All the money – if there is to be any – is made in the summer peak season. So that’s what trading positions have to be determined around. The twin estimates of what’s travel demand going to be and how well will Tui and other managements match supply to it?