TT. Tui Travel

TUI Travel PLC (TT.LN) Thursday said it expects to meet fiscal-year trading expectations, even though bookings appear to be leveling off.

"Despite the challenging trading environment and an anticipated flatter booking profile, we are achieving our load factor and margin targets due to our ongoing management of capacity, and we expect this to continue through the summer season," the company said in a statement.

Chief Executive Peter Long told reporters that TUI Travel's focus remains on managing its capacity to protect margins. "We are getting the supply and demand equation right," he added.

The company already has reduced capacity by 17% compared to a year ago, and Long described that level as appropriate, adding: "I don't think we will see any significant movement on that capacity."

He said economic recession across Europe and fears of job losses meant that consumers were "watching and waiting," delaying bookings. Still, he said TUI Travel's own research suggested 87% of consumers still planned to take an overseas holiday this year, the same percentage as last year.

Of that 87%, Long said 94% planned to take package holidays, up from 75% a year ago, and the anticipated decline in those consumers booking independently was "not surprising."

He suggested the high-profile bankruptcies of several tour operators recently that had left thousands of tourists stranded abroad and out of pocket had benefited TUI Travel and other U.K. holiday companies that held Air Travel Organizer's Licenses. ATOL is a financial protection plan managed by the Civil Aviation Authority.

TUI Travel, Europe's largest travel group by sales whose brands include Thomson and First Choice, said demand for all-inclusive holidays was significantly ahead of last year, but it didn't provide figures.

Long said all-inclusive packages were attractive because they allowed holidaymakers to control costs.

TUI Travel said sales in its activity sector were down 19%, primarily due to weaker demand in the U.S.

In the U.K., average selling prices have strengthened 11% over the past 10 weeks, which the company said remained significantly ahead of cost inflation at about 6%. Demand remained strong for medium-haul destinations, such as Turkey and Egypt. Destination choices appear to have been influenced by the weakness of sterling against the euro and U.S. dollar.

It said it was encouraged by early trading in Germany, where a capacity reduction of 14% had resulted in a 15% rise in average selling prices.

TUI Travel, which was created in 2007 through the merger of Germany-based TUI AG's (TUI1.XE) travel division and First Choice of the U.K., said its integration program was progressing in line with expectations and delivered about GBP30 million in synergies in the fiscal first quarter.

It remained confident of delivering at least GBP100 million in synergies in the fiscal year ending Sep. 30, 2009.

At 1140 GMT, TUI Travel shares traded up 10 pence, or 4.6%, at 235 pence. It was the second-biggest gainer on the FTSE 100, which was up 0.1%.

"Whilst we are encouraged by the delivery of synergies, we are mindful of the deteriorating macro environment and the likely deferral of bookings, which increases the risk surrounding current year earnings," said Collins Stewart in a research note. It rates TUI Travel sell and indicates fair value at 170 pence.

 
   Company Web site: www.tuitravelplc.com 
 
   -By Jonathan Buck, Dow Jones Newswires; +44 207 842 9237; jonathan.buck@dowjones.com 
 

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