TUI AG, which operates three cruise brands as parts of its business, has issued a profit warning for the financial year to 30 September, citing a host of woes from last year’s hot weather in Europe, shift in consumer demand and a weak British pound as sources of concern.

“TUI AG now expects FY19 underlying EBITA rebased at constant currency to be broadly stable compared with the record performance in FY18 of EUR 1,177m. Consequently, we are not reiterating our guidance of at least 10% CAGR in underlying EBITA at constant currency for the three years to FY20,” said the company, whose headquarters are in Hannover in Germany in a statement.

The company said 34% of its Markets & Airlines Summer 2019 programme has been booked to date. “Bookings are broadly in line with prior year, however, margins are not, TUI said.

This is driven by a continuation of the sector headwinds already discussed at our FY18 results presentation in December 2018, in particular:

  • negative impact from the extraordinary hot weather in 2018, resulting in later bookings and weaker Markets & Airlines margins;
  • shift in demand from the Western to Eastern Mediterranean, which has created overcapacities in certain destinations such as the Canaries, resulting in lower margins for Markets & Airlines; and
  • continued weakness of the Pound Sterling, making it difficult to improve margins on holidays sold to UK customers.

Previously, it was anticipated that these headwinds would impact primarily H1 (Winter), however we are seeing from current bookings an additional impact on H2 (Summer), and have updated our guidance accordingly.

TUI said the management is already taking specific measures to address Markets & Airlines headwinds, including harmonisation under one leadership to drive cost savings and efficiencies; reducing distribution costs by shifting to more direct, more online, more mobile; and increasing upselling of activities & excursions to drive revenue and margin benefits.

“We also expect that the continued sector headwinds may trigger market consolidation, and that TUI could be a beneficiary of this,” the company said.

TUI AG owns 50% of the German cruise operator TUI Cruises and is full owner of the expedition and luxury operator Hapag-Lloyd Kreuzfahrten and UK based Marella Cruises