TUI Blames Boeing 737 Max Crisis for Summer Earnings Slump

Aug. 13, 2019
The global idling of the Max following two fatal crashes meant TUI had to lease in less-efficient jets from third parties.

TUI AG blamed the grounding of its Boeing Co. 737 Max fleet for wiping out a profit rebound as the world’s largest holiday company cut costs and expanded in cruise ships.

The global idling of the Max following two fatal crashes meant TUI had to lease in less-efficient jets from third parties, according to a statement Tuesday, cutting earnings by 144 million euros ($161 million) in the quarter through June and causing profit to slump 46% when it would otherwise have gained.

“It’s a critical situation, with the jet on the ground now for almost five months. It’s a lot of stress,” Chief Executive Officer Friedrich Joussen said on a conference call, adding that leased planes are “very, very expensive” and the fuel bill considerably higher. He said TUI remains in compensation talks with Boeing, without commenting further.

TUI, which has 15 Max aircraft, reiterated that the grounding will cost it about 300 million euros in the year ending Sept. 30, saying it will step up efficiency measures at its tour operator arm to help cope. Joussen stood by the earnings outlook and pointed to improved booking trends, strong demand for breaks in Turkey and a thriving cruise-ship business as evidence that the company is in good health.

Shares of TUI trading in London were priced 3.1% higher at 835.60 pence as of 9:46 a.m., paring their decline this year to 26%.

TUI said that while customers are still booking later than they used to after the summer 2018 heatwave led many to stay home, sales as of Aug. 4 were down only 1% versus last year, improving from a 3% shortfall in the first half. Average prices are up 1% and Joussen said he expects that trend to continue.

Turkey is bouncing back as a major tourist destination after a slump in the past few years in the wake of terrorist attacks there. TUI is also continuing to build up the profitable cruise arm, which leaves it less dependent on demand for beach holidays.

Uncertainty around Brexit presents an obstacle to a company that relies on the U.K. for much of its revenue, with some Britons holding back on vacations amid concern about a possible no-deal split from the European Union at the end of October. TUI said it also has too much flight capacity in Spanish markets.

While Boeing is striving to get the Max back into service before the end of 2019 as it works on a fix for software blamed for the crashes, carriers including Southwest Airlines Co. have taken the plane out of their schedules until January.

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