TT. Tui Travel

Europe's largest holiday company, TUI Travel PLC (TT.LN), Wednesday said third-quarter operating profit rose, mainly due to further cost savings from its recent merger, but it warned that winter booking volumes are behind last year as the recession means consumers are delaying buying holidays.

Chief Executive Peter Long said the company remains "well positioned to meet the board's expectations" for the year to end-September.

"We anticipate market conditions will remain challenging and expect the later booking pattern to continue in the next financial year," he said, adding that the company would continue to alter capacity to match market conditions, allowing it to meet required load factors and keep up selling prices.

Although customers are booking later, the company said it still sees strong demand for a main summer holiday. It said bookings for the summer 2010 season have started positively in the U.K. and are in line with last year.

Earnings before interest, tax and amortization, excluding joint venture assets, or EBITA, rose to GBP102 million for the three months to June 30, from GBP65 million a year earlier.

It said it had managed to raise selling prices in some markets, delivered GBP21 million in synergies from the 2007 merger of TUI AG's (TUI1.XE) tourism assets with U.K. travel company First Choice Holidays PLC, and eliminated losses in Germany and the U.K.

However the company estimated that swine flu hit profits by GBP8 million.

Results were also hit by weak demand in France for travel to Madagascar and the French West Indies where there's civil unrest.

Revenue for the quarter was down 1% at GBP3.58 billion, due to capacity reductions in the U.K. and Germany and because sterling's weakness boosted revenues from outside the U.K. At constant currencies, revenue was down 9%.

The timing of Easter, which fell in the third quarter this year and the second quarter last year, also helped boost to results.

In the U.K., average selling prices for summer 2009 increased 7%, while customers booking charter holidays fell 12%. However, in Central Europe, average selling prices fell 3%, while in Western Europe prices dropped 2%. In Switzerland, where there is excess capacity, fierce price wars continue among competitors.

Due to seasonal distortions, travel companies usually make a loss in the first half. Net loss for the nine-month period to June 30 narrowed to GBP305 million, compared with a loss of GBP524 million a year earlier.

Net debt was GBP886 million at June 30, down from GBP1.10 billion at March 31.

Unlike airlines, holiday companies have maintained margins during the downturn by quickly cutting capacity and raising prices to overcome any fall in demand.

At 0701 GMT, TUI Travel shares were up 0.6%, or 2 pence, at 254 pence.

-By Kaveri Niththyananthan, Dow Jones Newswires; 4420 7842 9299; kaveri.niththyananthan@dowjones.com

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