TUI Says 737 MAX Grounding Could Cost it EUR 400 Million in 2020
By Sarah Young, Reuters | Dec. 12, 2019
Holiday company TUI Group said the grounding of its Boeing 737 MAX planes would continue to drag on profits, with a hit of up to 400 million euros possible in its 2020 financial year if the jet does not come back into service by May.
The company, whose main rival Thomas Cook went out of business in September, said on Wednesday that earnings forecasts for the 12 months to end-September 2020 assumed a 130 million euro hit from the grounding.
But it added that forecast earnings growth of at least 6 percent was based on the 737 MAX being back in service by the end of April and that an additional 220 million to 270 million euros could be wiped off profits if it was not.
"April is what we expect," CEO Fritz Joussen told reporters. "Our core guidance is the end of April".
The company, whose main rival Thomas Cook went out of business in September, said on Wednesday that earnings forecasts for the 12 months to end-September 2020 assumed a 130 million euro hit from the grounding.
But it added that forecast earnings growth of at least 6 percent was based on the 737 MAX being back in service by the end of April and that an additional 220 million to 270 million euros could be wiped off profits if it was not.
"April is what we expect," CEO Fritz Joussen told reporters. "Our core guidance is the end of April".
"It will be interesting discussions. It's already interesting discussions and I can guarantee you that we are taking it very seriously," he said.
Overshadowed
Analysts at Stifel said the MAX uncertainty was overshadowing a time when TUI should be "emerging from a period of capital intensive transition to a brighter future."
The company's London-listed shares fell 1.1 percent to trade at 932 pence by 1449 GMT.
TUI said it would have matched 2018's record earnings had it not been for the 737 MAX grounding. Instead, full-year earnings before interest, tax and amortization (EBITA) were down 26 percent to 893 million euros.
It also faced headwinds from overcapacity on routes to Spanish destinations and Brexit uncertainty, factors that were partly behind the failure of Thomas Cook.
TUI, which owns its own cruise ship business, said that it was benefiting from Thomas Cook's demise, with an increase in bookings and higher prices for the current winter and coming summer seasons.
There is still plenty of competition in the European travel market, however, with rivals such as On The Beach and Jet2 also looking to cash in on Thomas Cook's collapse, as well as the relaunch of budget airline easyJet's holiday business.
Barclays analysts said a change to TUI's dividend policy would lower the consensus forecast payout for 2020.