TUI results extend post-Thomas Cook bounce

It will take time for the real benefits of Cook's demise to boost rivals, but TUI is attracting buyers.

This update from TUI (LSE:TUI) ahead of full-year results on 12 December, delivers proof, if it were needed, that these are tough times in the travel industry.

The demise of Thomas Cook (LSE:TCG) may well present TUI with unexpected opportunities, although it may be some time until such benefits wash through. TUI is a rather different animal from Thomas Cook, with its diversified business model and digital aspirations providing rather more of a defence than the one broken at its former rival.

Holiday Experiences, Cruises and Destination Experiences have continued their strong run as previously guided, with the summer season closing out as expected. Even the embattled Markets and Airlines division has seen something of an improvement since the previous update. 

Continued investment in the business, such as the opening of several new hotels and additional cruise capacity, should also add to bookings despite a broadly challenging European economy, while the company aims to be more price competitive next year. 

In the meantime, the current dividend yield of 7.1% is adequately covered for now and provides some comfort for investors who have had to endure a turbulent year to say the least. If TUI capitalises on its aim to become an "integrated digital tourism platform business", the clouds overhanging the business may begin to clear.

Source: TradingView Past performance is not a guide to future performance

A raft of challenges nonetheless remain, not least of which is the continued grounding of its Boeing 737 fleet. Although a resolution is being sought, the decision lies in the hands of the civil aviation authorities, who currently have other, equally pressing, issues also to consider. 

This aside, the company has stated that the inevitable Brexit uncertainty continues to drag on prospects, while general airline overcapacity remains a factor, even if it will have eased somewhat following the Thomas Cook announcement. 

The Boeing 737 inactivity has had a material impact on earnings, which are still expected to have dropped by up to 26% with costs ongoing (such as the leasing of replacement aircraft) and two profit warnings earlier in the year have naturally had a detrimental impact on the share price. 

In addition, the outlook for 2020 is also guarded, with TUI admitting that the "external challenges" are likely to persist and spill over into the next trading year.

In all, the jury remains out not just for TUI's progress but perhaps for the industry as a whole. The share price has spiked of late, having risen 23% over the last three months including a fillip yesterday following the Thomas Cook news, although over the last year the picture is markedly different. Here, a decline of 37% compares to a 1.8% dip for the wider FTSE 100 index, while the general view of the shares has also recently eased. 

Perhaps not surprisingly, given these uncertain times and clear challenges, the market consensus of the shares has now slipped to a 'hold', albeit a strong one.