TT. Tui Travel

Europe's largest travel operator, TUI Travel PLC (TT.LN), Tuesday proposed a higher dividend payment despite posting wider first half losses as it cut capacity to meet weak demand and warning that the disruption caused by the Icelandic volcano eruption will hit third-quarter profits.

The company said it will take a GBP90 million hit in the third-quarter after suffering 12 days of disruptions following volcanic ash spews from Iceland, although it still expects to hit full-year targets.

"Despite the impact of the disruption, I expect positive momentum in the second half of the year as strong underlying demand improves trading and merger synergies continue to be delivered. Excluding the impact from the volcanic ash disruption, I remain confident that we can meet the Board's original expectations for 2010," Chief Executive Peter Long said.

Airlines, airports and travel companies around the world have been hit after the ash cloud from the volcano shut most of European airspace for up to six days in April. The volcano is still erupting and causing sporadic airspace shutdowns in the U.K. and Ireland and the Iberian peninsula as prevailing winds blow the ash southeast.

Long said that despite the widespread airspace closure in April, booking volumes strengthened in May and the company's performance in its fiscal first half to end-March was in line with its expectations as demand continued to improve.

Signalling its confidence, TUI Travel proposed an interim dividend of 3.2 pence, 7% higher than the 3 pence it paid shareholders last year.

The company's losses widened in the first half of the year, although holiday companies traditionally post a loss during the first half of the year as the main holiday season occurs in the second half of the year.

Its pretax loss, excluding amortisation of business combination intangibles and acquisition related expenses, was GBP367 million, compared with GBP333 million loss a year earlier. On an operating level, losses increased to GBP314 million from GBP289 million last year after the company cut the number of holidays available and experienced yield pressure at its French airline Corsair. Revenue for the period fell 8% to GBP5.38 billion.

Its loss per share was 24.3 pence, wider than the 21.6 pence posted a year earlier.

At 0707 GMT, TUI Travel's shares were down 5 pence, or 1.8%, at 254 pence. Over the past three months the shares have slipped 0.08%.

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

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