Travel firm Tui and its optimistic customers are banking on a horse racing treble

As any punter will tell you, they don’t often come in. The odds will be against the company for as long as the Covid-19 pandemic continues to rage, James Moore writes

Travel in a Covid-19 world... but Tui thinks it can still make holidays safe and fun (AFP/Getty)

Perhaps the most striking thing about travel firm Tui’s results is that it’s taking any bookings at all.

Yet while the company said it had experienced a “material decline” in the wake of Covid-19, “the greatest crisis the tourism industry and Tui has ever faced”, there are still people willing to commit cash in the hopes of a sunny, virus-free summer.

Some 35 per cent of the company’s programme has been sold to date, which compares with 59 cent this time last year. Tui’s forecast is that summer 2020 will see a decline of 36 per cent when the dust has settled.

Given the current state of play, you could easily file under the heading “wildly optimistic”.

Mind you, if Tui’s crossing a few too many fingers, then what about the customers who have already taken, or are expected to take, the plunge?

Both are, in effect, gambling on what horse racing fans would describe as a “treble” – a bet that rests on three separate horses winning three separate races to pay out. Needless to say, they don’t often do that for punters who indulge.

The first leg obviously depends on there being any travel at all, and on the health secretary Matt Hancock being wrong when he warned, in a TV interview, Britons that “it is unlikely that big, lavish international holidays are going to be possible for this summer”.

Take note of that because his portfolio means you would expect him to be reasonably well informed about the behaviour of the virus and the likely scenarios from here on out.

The second is that Tui can make its offerings sufficiently safe to pass muster. There’s an interesting debate to be had about that. The company talked in its statement about “new procedures for the airport process, on board our aircraft, in hotels and on our ships” so that “any social distancing recommendations or guidelines can be implemented, without compromising customer enjoyment and travel experience”.

File under “things that make you go hmm”.

Neither would be my idea of an odds-on shot.

That brings us to the third leg. It rests on Tui being around to deliver, in the event that the first couple of ponies respond to their jockeys urgings and surge past the winning post.

The emergence of the novel coronavirus was a particularly tough break for the company, which had been enjoying a buoyant start to the year. January was described as “the best bookings month” in its history.

Since then it’s been all downhill, and Tui reported an underlying loss of €829m (£736m), for the first six months of its financial year, compared to a €302m deficit over the same period in 2019.

The company, which is headquartered in Germany but listed in London, has secured a €1.8bn bridging loan from the German government. Unhappily, it has also announced plans for 8,000 job losses with the aim of cutting its costs and emerging “leaner and more flexible post-Covid-19”.

“We expect that the Tui Group currently has and will continue to have sufficient funds, resulting both from borrowing and from operating cash flows, to meet its payment obligations for the foreseeable future,” a spokesperson said.

So reasons to be cheerful?

Well, maybe. On the other hand, Tui now has net debt of €4.9bn sitting on its balance sheet and the bridging loan has to be paid back in the middle of 2022.

That should be enough to give anyone trying to price up the odds on leg three pause for thought. Even assuming a best-case scenario, the going reads “heavy”.

“Ultimately it is dependent on the virus being brought under control and no one knows when that will happen,” opined Russ Mould, from broker AJ Bell.

In the company’s favour is the “priority” its customers place on their holidays. Their willingness to indulge in bookings based on hope springing eternal should help to keep its horses in feed for now. But the winning posts it needs to pass for our mythical treble to come in look a long way off.