Less means more for TUI

TUI Travel is benefiting from a major reduction in the amount of holidays on the market following the collapse of XL Travel last year and planned capacity reductions by itself and major rival Thomas Cook. While there's still much to play for in the make-or-break summer booking season, a noteworthy increase in bookings in the last two weeks is encouraging. Bookings are getting later, though, as consumers fret about their jobs. However, with fewer holidays to sell, TUI has yet to feel much pressure to discount.

In fact, the pain being felt by the leisure sector is playing into TUI’s hands. Hoteliers and airlines are struggling to fill empty beds and seats, which is making them more amenable to offering deals to customers booking through tour operators. TUI is using this to offset the impact of the strong euro on holiday costs while maintaining margins. The group also remains on target to deliver £200m of annual synergies from the 2007 merger with First Choice.

Still, rising unemployment means tougher times are likely to be ahead and more capacity cuts are expected for the winter and next summer. KBC Peel Hunt forecasts adjusted full-year pre-tax profit of £371m and EPS of 23.8p (£320m and 20.2p, respectively in 2008).