TUI records plummeting earnings

TUI recorded plummeting earnings for its second-quarter. This was due to costs incurred by the merged airline TUIfly.com and the ongoing merger of the tourism operations with First Choice.

Also hurting earnings, the seat load factor at TUIfly.com slumped 12 percentage points to 79.5 pct in the second quarter.

Full statement:

Despite a decline in turnover and Group earnings in the second quarter 2007 compared to the previous year, TUI AG upholds its optimistic assessment of the development of its operative business in the year 2007 as a whole.

Overall, a stable turnover trend is expected for 2007. Against the backdrop of currently strong bookings in the tourism division and an increase in freight rates in shipping, a significant operative improvement is expected for the second half of the year.

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In the tourism division, TUI AG reported an almost stable turnover trend in the second quarter of 2007 despite a weak booking development in the months of April and May.
Compared with the second quarter in 2006, turnover rose by 0.1 per cent to 3.6 billion euros. Source market Central Europe (+6.3 per cent) and the destinations sector (+22.1 per cent), in particular, showed substantial turnover growth year-on-year. An opposite trend was observed in source market Northern Europe, which recorded a decline in turnover (-9.4 per cent). Turnover in source market Western Europe almost matched 2006 levels (-0.5 per cent). In the shipping division, turnover dropped by 4.2 per cent to 1.5 billion euros in the second quarter of 2007. This development was driven by the year-on-year weakening of the US dollar and the decline in freight rates in almost all trade lanes. Total turnover by the Group’s divisions (tourism, shipping, central operations) accounted for around 5.2 billion euros in the second quarter, down 2.0 per cent year-on-year.

In the second quarter, underlying earnings (underlying EBITA) by tourism totalled 48 million euros, a considerable decrease year-on-year (145 million euros). This corresponded to a decline of 66.9 per cent.

Underlying earnings by source market Central Europe dropped by 34.7 per cent to 47 million euros in the second quarter. The positive trend in the tour operator segment was curbed by a lower load factor of the new airline brand TUIfly.com. Although the number of air passengers rose by 9.6 per cent, the seat load factor on the fleet, which was expanded by four additional aircraft compared with the 2006 reference quarter, dropped to 79.5 per cent (previous year: 91.5 per cent).
Underlying earnings by source market Northern Europe totalled minus ten million euros (previous year: 43 million euros) in the second quarter. This earnings trend was primarily characterised by the difficult situation in the high volume generating business and the resulting price pressure in the UK, which was augmented by drastic air passenger duties. In source market Western Europe, underlying earnings totalled minus 19 million euros, down 18.8 per cent year-on-year (-16 million euros). This was attributable to costs incurred by the increase of flight capacities in Belgium. In the destinations sector, earnings dropped by 31.8 per cent to 30 million euros (previous year: 44 million euros). Besides proceeds from a sale in the previous year, this was mainly due to costs related to renovation work in a Robinson Club.

Earnings by the shipping division were characterised by a year-on-year decline in freight rates. Adjusted for special effects, underlying earnings amounted to minus 15 million euros (previous year: five million euros). Freight rates in container shipping across all trade lanes were 5.6 per cent lower in the second quarter compared to the previous year. At the same time, transport volumes rose by
7.4 per cent to 1,382 million standard containers (TEU).

Overall, underlying earnings by the Group’s divisions (tourism, shipping, central operations) totalled 18 million euros in the second quarter and thus dropped substantially year-on-year (128 million euros).

Prospects
TUI AG’s Executive Board upholds its optimistic assessment of the develoment of the operative business in the overall year 2007. In tourism, trading in Northern Europe is expected to improve significantly in the second half of the year due to the market trend in the UK and cost savings. The Western Europe sector is also expected to show a considerable improvement, since the business is recovering after high costs had been incurred in 2006.

In the Central Europe sector, the tour operator business conitnues to show very good development whilst pressure remains on the sead load factor of the German airline TUIfly.com. The development of business observed over the next few weeks will be crucially important for the performance trend. Performance by the destinations sector will benefit from new hotel openings. The merger with First Choice Holidays PLC is expected to become effective in September 2007 and this will impact reported results going forward.

At Group level, bookings for the 2007 summer season are currently 3.5 per cent up year-on-year. Customer numbers are 7.9 per cent up year-on-year. Source market Central Europe is showing a particularly gratifying trend with turnover growth of 6.1 per cent (customers: 10.7 per cent). In the Western Europe sector, booked turnover is currently 8.8 per cent up year-on-year (customers: 6.3 per cent), while source market Northern Europe is currently reporting a decline in turnover of 3.4 per cent (customers: +4.0 per cent). Along with an improved pricing quality bookings on Group level for the last five weeks are more than ten per cent up compared to the same period last year.

The shipping sector was characterised by strong volume growth and a recovery of freight rates in the second quarter. Against the background of freight rates currently continuing to rise, positive operating earnings contributions are expected for the second half of the year. Considering strong bookings in the tourism division and an increase in freight rates in shipping, a significant operative improvement in earnings is expected for the second half of the year.

Detailed development of the divisions
Tourism
In the second quarter of 2007, 6.3 million customers purchased products of the TUI Group’s tourism division, an increase of 5.6 per cent year-on-year (6.0 million). Turnover by the tourism division totalled 3.6 billion euros, matching 2006 levels (3.6 billion euros).

While the Central Europe (+6.3 per cent) and destinations sectors (+22.1 per cent) achieved year-on-year turnover growth, the Northern Europe (-9.4 per cent) and Western Europe (-0.5 per cent) sectors reported a decline in turnover year-on-year in the second quarter of 2007. At 13 million euros, earnings (EBITA) by the tourism division dropped sharply year-on-year (152 million euros). Adjusted for one-off expenses, underlying earnings by the division amounted to 48 million euros (previous year: 145 million euros).

In the Central Europe sector (Germany, Austria, Switzerland and airline TUIfly.com), the number of customers grew by 7.1 per cent to 3.2 million (previous year: 2.9 million) euros in the second quarter of 2007. The sector achieved turnover growth, essentially driven by the development of business in Germany. Turnover grew by 6.3 per cent to 1.65 billion euros (previous year: 1.55 billion euros). Earnings by the Central Europe sector, in contrast, declined in the second quarter of 2007. At 41 million euros, they fell 37.9 per cent short of 2006 levels (66 million euros). This trend was primarily attributable to a decline in the load factor of the flight capacities. A further effect was caused by integration costs associated with the merger of the two airlines Hapag-Lloyd Flug and Hapag-Lloyd Express to establish the new brand TUIfly.com. Adjusted for the one-off effects, underlying earnings in the second quarter totalled 47 million euros and were thus down 34.7 per cent year-on-year (72 million euros).

In the Northern Europe sector (UK, Ireland, Nordic countries and airlines Thomsonfly and TUIfly Nordic), 1.91 million customers travelled with tour operators of the sector in the second quarter, an increase of 1.7 per cent year-on-year (1.88 million). Since this growth was mainly driven by
Thomsonfly’s seat-only business, turnover by the sector declined by 9.4 per cent to 1.12 billion euros
(previous year: 1.24 billion euros). Earnings by the Northern Europe sector were mainly characterised by a difficult market environment and strong price pressure in source market UK. In addition, special expenses were incurred in the second quarter of 2007. At -36 million euros, earnings dropped by 79 million year-on-year (43 million euros). Adjusted for the special expenses, earnings totalled minus ten million euros (previous year: 43 million euros).

In the Western Europe sector (France, Belgium, Netherlands and airlines Corsair, TUI Airlines Belgium, TUI Airlines Nederland), customer numbers climbed 8.0 per cent to 1.23 million (previous year: 1.14 million) in the second quarter. At 707 million euros, turnover decreased slightly year-on-year (711 million euros).

Earnings by the Western Europe sector totalled minus 22 million euros in the second quarter and thus declined year-on-year (minus three million euros). In particular the source markets Belgium and The Netherlands did not reproduce the earnings levels achieved in 2006. Earnings development was impacted by costs which were incurred by the increase of flight capacities in Belgium. Earnings in the second quarter of 2007 also comprised restructuring expenses in the Dutch market of three million euros whilst the second quarter of 2006 included one-off income from the divestment of the specialist tour operators. Adjusted for these one-off effects, underlying earnings stood at minus 19 million euros, down on the comparative level for 2006 (-16 million euros).

Turnover by the destinations sector (incoming agencies and hotel companies) rose by 22.1 per cent to 167 million euros (previous year: 137 million euros) in the second quarter. At 30 million euros, earnings by the division, in contrast, fell by 21.1 per cent year-on-year (38 million euros). This was due to renovation work at a Robinson Club in the second quarter of 2007 as well as the divestment of a Robinson Club in the second quarter of 2006. Underlying earnings by the sector also totalled 30 million euros (previous year: 44 million euros).

Shipping
In the second quarter of 2007, the shipping division reported a decline in turnover of 4.2 per cent to 1.54 billion euros (previous year: 1.60 billion euros). The development resulted from the year-on-year drop in freight rates and the persistent weakness of the US dollar despite an increase in total transport volume. While container shipping contributed turnover of 1.45 billion euros in the second quarter (previous year: 1.52 billion euros), Hapag-Lloyd Kreuzfahrten accounted for turn-over of 86 million euros (previous year: 85 million euros).

The average freight rate charged in the second quarter was 1,350 US dollar/TEU, down 5.6 per cent year-on-year (1,430 US dollar/TEU). The total transport volume, in contrast, rose by 7.4 per cent to a total of 1,382 million standard containers (TEU).

At 13 million euros, operating earnings by the shipping division thus rose substantially year-on-year (-41 million euros). Container shipping accounted for 11 million euros, with Hapag-Lloyd Kreuzfahrten generating earnings of two million euros. Adjusted for risk items from the integration of CP Ships as well as one-off expenses for the integration of CP Ships, underlying earnings for the second quarter totalled -15 million euros (previous year: five million euros).
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