By Sarah Young
LONDON (Reuters) – European travel company TUI <TUIGn.DE> <TUIT.L> said an exceptional number of holiday bookings would help offset the impact of the Boeing 737 MAX grounding on its annual profit, enabling it to lift the bottom end of annual earnings guidance.
TUI is benefiting from the failure of rival travel company Thomas Cook last September, helping it to pick up new customers and gain market share, but at the same time it faces headwinds from the MAX grounding as it has to pay to lease other planes.
TUI’s London-listed shares had soared by 11.6% to 955 pence by 0904 GMT.
The company said for the 12 months ended Sept. 30, it now expected underlying core earnings (EBIT) to be in the range of 850 million euros to 1.05 billion euros. It had warned in December that MAX costs could drag annual earnings down to 680 million euros in a worse case scenario.
TUI said the UK recorded its best ever January in booking terms.
“January this year was very, very strong,” Chief executive Fritz Joussen told reporters on a call.
The company grew first quarter earnings in its markets and airlines business by 14%, helped by adding new airline capacity and as it contracted hotels which had formerly served Thomas Cook in destinations like Turkey.
Joussen said that fears about the spread of Coronavirus were not impacting customer demand for holidays, but added that was partly because European customers did not tend to book holidays to Asia at this time of year.
The Boeing <BA.N> 737 MAX was grounded last March after two crashes killed 346 people, and the aircraft is not expected back in service until at least mid-2020.
TUI said that an extended grounding period was now expected for the rest of its financial year, estimating that would cost it between 220 million euros to 245 million euros, compared to the 220 million euros to 270 million euros cost it had warned of in December.
It said its updated annual profit guidance included a “certain level” of compensation it expected to receive from Boeing this year, but there were questions over how this would be structured.
“There will be compensation from Boeing but it is a matter of negotiation and a matter of mutual agreement, how much is paid in cash, how much is paid in future deliveries, how much is credit notes,” Joussen said.
The 220 million euros to 245 million euros hit from the MAX comes on top of the 130 million euro cost for this financial year, which had already been flagged by the company in December.
(Reporting by Sarah Young; Editing by Kirsten Donovan)