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TUI warns of 2019 headwinds from Spain overcapacity, 737 MAX grounding

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TUI warns of 2019 headwinds from Spain overcapacity, 737 MAX grounding
A TUI Boeing 787-8 Dreamliner aircraft prepares to take off from Manchester Airport in Manchester, Britain September 4, 2018. REUTERS/Phil Noble   -   Copyright  PHIL NOBLE(Reuters)
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By Alistair Smout

LONDON (Reuters) – TUI said its first-half losses deepened due to airline overcapacity for Spain and the grounding of its 15 Boeing 737 MAX planes, two issues that could plague the Anglo-German tour operator over the rest of the year.

TUI said it needed clarity over the status of its grounded planes by the end of May or it will take another hit on profit, and did not rule out cancelling 8 MAXs it has on order.

It posted an underlying loss of 300.6 million euros (260.9 million pounds), compared to a loss of 168.7 million euros the previous year, hindered by lower margins in Spain as well as the 737 MAX grounding.

“All markets are suffering competitive pressure… the main issue is overcapacities of the airlines into Spain,” Chief Executive Fritz Joussen told reporters.

“That is putting pressure into the system… this will be a trend which will be continuing also in the second half of the year.”

Tour firms built up capacity in Spain when security issues deterred travellers from visiting Turkey and Tunisia in 2016. TUI also said that it was still feeling the effects from a summer heatwave last year, which forced firms to cut prices further to attract last minute bookings from Northern Europe.

Joussen said that capacity had been cut “where sensible”, but TUI also didn’t want to sacrifice market share.

There has been a year-on-year decrease in bookings, TUI said, although demand to travel to Turkey was growing. It added that while average prices are up 1%, margins are considerably lower than last year.

The firm reiterated its outlook for lower profits, issued in March after Boeing suffered two fatal crashes that led to the grounding of the plane for all airlines.

TUI operates 15 MAXs – one-tenth of its fleet. It has a further 8 on order which had been due for delivery in May.

Joussen said that the plane would be one of the most-tested aircraft by the time its flight ban is lifted, but didn’t rule out cancelling those orders.

“Cancelling and not taking deliveries is something very different. For the time being, we just don’t take them,” Joussen said.

“We might take aeroplanes or not… I assume we will get into a normal modus operandi, but that is speculation.”

TUI said it needed reassurances in May that the MAXs could resume by mid-July, or it would activate measures for the summer season such as substituting planes that would cut underlying earnings before interest, tax and amortisation (EBITA) by up to 26% this year.

The one-off impact on results of such measures would be up to 300 million euros ($336.21 million), compared to the 200 million euros cited in March, due to the cost of loss of business and lower fuel efficiency.

(Reporting by Alistair Smout; editing by Kate Holton and Alexandra Hudson)

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