Vacation Travel Demand on the Rise: TUI's Low Debt Ratio Persists with Increased Investments
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Anticipated Growth in Profits According to Future Estimates by Tui
TUI, the travel juggernaut, experienced a significant revenue surge in the fiscal year 2023/24, with 20 million customers contributing to a 12% revenue increase to €23.2 billion. Adjusted operating profit (EBIT) skyrocketed by 33% to €1.3 billion, while net income soared to €507 million. Despite an initial stock price drop in Xetra trading, TUI's shares are up 45% over the past three months due to profit-taking 1.
Winter bookings are currently 4% ahead of last year, and summer sales are 17% sold out at higher prices. Yet, TUI's CEO, Sebastian Ebel, anticipates only a 7-10% earnings growth in the current fiscal year, with the aim of maintaining this trend in the medium term 1.
The key to success lies in TUI's expansion into emerging markets beyond Europe. Ebel highlights Eastern Europe and America as prime targets. Aiming to transform its Markets & Airlines segment into a global tourism platform, TUI plans to collaborate with airlines like Ryanair and Easyjet to increase its share in the burgeoning "Dynamic Packaging" segment, where travel components are purchased at daily prices 2.
Dynamic packaging business volume grew by 17% last year and is expected to see double-digit growth in the medium term. TUI's investment in this area is expected to range between €620 million and €680 million in the current fiscal year, up from €602 million last year 2. Some of these investments will fund the acquisition of new Boeing aircraft, while the majority will be allocated to hotel operations. TUI aspires to boost its hotel portfolio by 15 by 2025 and another 25 by 2026, and TUI Cruises will launch a new ship 2.
CFO Mathias Kiep expects the cruise joint venture to return to the traditional 30% dividend payout this year. Despite the increase in investments, Kiep forecasts a low debt ratio in the new fiscal year. Last year, net debt fell to €1.6 billion from €2.1 billion, representing a factor of 0.8 of EBIT, far below the 2019 level of 1.6. TUI's goal remains to return to a "rating territory" of "BB/Ba" 3.
TUI’s strategy embraces financial improvement, expansion in key areas such as dynamic packaging and hotel portfolio, and disciplined debt reduction. This balances growth and financial stability over the next few years 4.
[1] https://www.example.com/tui-profit-taking[2] https://www.example.com/tui-dynamic-packaging[3] https://www.example.com/tui-debt-reduction[4] https://www.example.com/tui-strategy-overview
The financial stability of TUI, boosted by increased investments in dynamic packaging and hotel portfolio, could positively impact the travel sector, contributing to a lifestyle change for the better. As TUI aims to maintain a low debt ratio in the upcoming years, the company's strategic business moves could pave the way for more affordable travel options, potentially sparking an interest in travel among various demographics.
