Flight to value keeps Tui on target

Cash-strapped Britons opting for cheap package holidays coupled with capacity cuts is keeping Tui Travel on track despite weakening discretionary spending, the group announced.
In an interim management statement, Tui said: “Despite the challenging trading environment and an anticipated flatter booking profile, we are achieving our load factor and margin targets due to our ongoing management of capacity, and we expect this to continue through the summer season.“All-inclusive booking increased 20 per cent on last year, with Turkey and Egypt proving popular as holidaymakers shunned Eurozone countries because of sterling’s weakness.
Average selling prices for the summer 2009 season rose 11 percent over the last 10 weeks, despite a fall in sales of 10 percent, which it said was well ahead of inflation of around 6 percent.
UK capacity was 17 percent, with scope for further reductions. According to chairman Peter Long, the group could take another 2-3 per cent of capacity out of the market.
“I don’t believe demand is going to fall to the extent that more than 20 per cent of our customers are not going to go away,” he said. “I don’t think we are struggling to fill holidays.”
The company also said that in the current economic climate, with tour operators and airlines struggling, more Britons would pay the extra for having their holidays protected by the Air Travel Organisers’ Licensing (ATOL).
It said research indicated that 94 percent of British customers who had booked a holiday by this time last year but had yet to do so, intended to take a package holiday that was ATOL protected, representing an 85 percent increase in the number it found in an equivalent survey last year.
The winter season has seen UK average selling prices rise 10 per cent on a reduction in capacity of 9 per cent.
However conditions are tough in North America. Overcapacity in the Canadian market has forced all operators into heavy discounting in the lates market and put pressure on margins. In the U.S. its specialist sector is being hit by the economic downturn.
Synergy savings totalled £30m in the first quarter of its financial year, and the group said it was confident of meeting its total savings target of £175m.
The group, which was formed last year out of the merger of Tui and First Choice, is near-fully hedged position against oil price rises, so falling oil prices would not produce a benefit until next year.