Current Trading
Trading is in line with our most recent trading update that was released on 14 November 2008.
For all seasons currently on sale, we continue to focus on ensuring that we recover our input costs and achieve our margin targets by leveraging the flexibility we have in our business model. Accordingly, in anticipation of a period of weaker demand, we have implemented significant capacity reductions across our source markets. These reductions have enabled us to maintain, and in certain markets (UK and Central Europe) increase, the average selling prices we are achieving compared to our trading update on 29 September 2008, reach the necessary load factors and deliver our margin targets.
Winter 2008/09
| Current Trading1 | Winter 2008/09 | Risk Capacity3 | |||
| y-o-y variation% | ASP2 | Sales2 | Customers2 | Capacity | Left to sell4 |
| Mainstream | |||||
| Northern Region | |||||
| Short-haul | +5 | -9 | -13 | -16 | |
| Medium-haul | +11 | +3 | -7 | -8 | |
| Long-haul | +6 | -1 | -7 | -4 | |
| UK – Charter | +10 | flat | -9 | -9 | -9 |
| Nordic | +3 | -6 | -9 | -8 | -8 |
| Canada | flat | -1 | -1 | -4 | -5 |
| Northern Region – Total | +8 | -2 | -9 | -8 | -8 |
| Germany - Charter | +4 | flat | -4 | ||
| Germany - Scheduled | +23 | flat | -19 | ||
| Germany - Total | +9 | flat | -8 | -15 | |
| Austria | +2 | -13 | -15 | -10 | |
| Switzerland | -4 | -9 | -5 | -20 | |
| Poland | +8 | +41 | +31 | +24 | |
| Central Europe – Total | +8 | -1 | -8 | -15 | -18 |
| France | +11 | -6 | -15 | -8 | |
| Belgium | +5 | +2 | -3 | -6 | |
| Netherlands | +1 | -13 | -14 | -15 | |
| Western Europe - Total | +7 | -6 | -12 | -8 | -1 |
| Specialist & Emerging Markets | +11 | +9 | -2 | ||
| Activity | NA | -6 | NA | ||
| ODS | +6 | +14 | +8 | ||
| UK Scheduled - discontinued | +39 | -68 | -77 | -88 | -97 |
1 These statistics are up to 16 November 2008
2 These statistics relate to all customers whether risk or non-risk
3 These statistics exclude non-risk lines of business – primarily in Western and Central Europe (e.g. overland)
4 % change in number of holidays left to sell versus prior year
Summer 2009
In the UK, we are continuing to focus on managing our capacity in anticipation of a weaker earlier booking environment. Accordingly, we have reduced capacity by 16% to ensure that we achieve strong average selling prices, meet load factor targets and consequently achieve our margin targets. To date volumes have been 17% lower but average selling prices have remained strong and are up 10% versus prior year, which is substantially greater than the expected cost inflation (of circa 6%) in this season. The total programme load factor is flat versus prior year at 19% but, as a result of the capacity reductions we have implemented, there is already 14% less stock left to sell for the season.
Fuel/Foreign Exchange
We are largely hedged for all open seasons, providing us with certainty of cost to inform our pricing decisions. As a result of greater cost inflation in the UK (due to the current weakness of Sterling against the Euro) and as the only source market on sale for the Summer 2009 programme, we are further hedged than in Continental European source markets.
Whilst partially offset by the Dollar strength, the recent fall in fuel prices will lead to some benefit in the current financial year in Continental European source markets. However, we anticipate that the majority of the benefit of the lower oil prices will materialise in the financial year ending 30 September 2010.
UK Hedged Position
| Winter 2008/09 | Summer 2009 | |
| Fuel | 96% | 95% |
| FX Euro | 96% | 95% |
| FX USD | 99% | 94% |
Group Hedged Position
| Winter 2008/09 | Summer 2009 | |
| Fuel | 90% | 83% |
| FX Euro | 97% | 95% |
| FX USD | 90% | 85% |
Integration
Progress has been excellent to date. As a result we are upgrading the synergy target from £150m to £175m per annum and have accelerated the delivery timetable. The additional £25m synergy benefit will be achieved primarily through additional benefits of £15m arising from the UK integration, particularly in the airline as a result of further efficiencies in network planning. In addition, the Group and Global target has been upgraded by £10m to £35m, due to further opportunities identified in the integration of a number of specialist businesses in the UK that require turnaround and our offline incoming agencies in the ODS Sector.
Accordingly, we have exceeded our 2008 target by £10m, with £35m of benefits delivered in the year. We ended the financial year with an exit run-rate of £70m, meaning that the majority of our 2009 target of £100m is already achieved.
Synergy phasing
| £m | FY08 | FY09 | FY10 |
| P&L benefit | 35 | 100 | 160 |
| Incremental P&L benefit | +35 | +65 | +60 |
| Exit rate | 70 | 140 | 17 |
As a result of the additional synergy opportunities identified and the acceleration of synergy delivery, the one-off integration costs are now expected to total £230m (from £180m). Expected capital expenditure to support the integration is expected to be at £28m (from £25m). Integration costs of £164m have been incurred in 2008, with the remainder to be incurred in 2009.
Integration cost
| £m | FY08 | FY09 | FY10 | Total |
| P&L cost | 164 | 66 | - | 230 |
| Capex cost | 15 | 13 | - | 28 |
In the financial year, we achieved a number of key milestones relating to the integration project, including:
UK Mainstream
- Integration of our UK airlines, which are now operating as a single entity, under a single operating licence, as Thomson Airways.
- Launch of a combined reservation platform for Summer 2009 in the UK, which will enable us to optimise our yield management capability.
- Integration and relocation of UK airline and tour operating support functions to a new UK head office in Luton.
- Consolidation of UK Mainstream call centres and customer service operations.
- Virtual Call Centre rollout across the First Choice retail network, which will enable us to recreate the customer service benefits and cost efficiencies experienced when this was implemented in the Thomson retail estate.
Group and Global
- Migration of our UK Specialist brands onto a single reservation platform and consolidation of call centre operations.
- Migration of our ski businesses on to one reservation platform and consolidation of a number of UK Activity businesses into a single head office infrastructure.
- Successful launch of Marmara products through NF distribution channels.
- Savings delivered in insurance purchasing and cash management charges.
- Combination of offline incoming agency services in a number of key destinations within our ODS sector.
TUI AG
On 12 October 2008 TUI AG announced the disposal of its shipping business, Hapag-Lloyd AG, and indicated that the proceeds of the sale might be used to make an offer for the rest of TUI Travel's shares. TUI AG subsequently announced on 16 October that it had no current intention of making such an offer. Under the City Code on Takeovers and Mergers, it is precluded from doing so for six months, except in certain situations.
As it may become necessary to consider an offer by TUI AG, the Board of TUI Travel will form a committee of independent directors to consider the merits of an offer and any related matters. Sir Michael Hodgkinson, Deputy Chairman and Senior Independent Director of TUI Travel will chair this committee.
Outlook
Despite a more challenging trading environment we are satisfied with our current position across all our source markets and businesses. Within our Mainstream source markets, through a combination of reducing fixed capacity, third party flying (which is 30% of all tour operator capacity) and uncommitted bed stock (which accounts for 80% of bed stock), we believe we can manage the current market conditions and continue to improve the performance of the business.
We retain significant strength, diversity and flexibility in our business model through our hedging positions, capacity management, brand leadership and management experience to be well positioned to outperform the market in 2009 and 2010.
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