TUI stocks have now bottomed out as the Anglo-German travel firm staggers under the weight of a pandemic that continues to rage on. How can governments, and the public they are sworn to protect and indemnify, go “all in” in order to save businesses supposedly competing in a fair market? Here’s a look at the state of tourism, with TUI Group highlighted.
TUI shares sit at around £4, a price that shows the world’s biggest tour company losing more than 57% of its value in a year. For the year ending September 30th, TUI accused some £2.8 billion (€3.2bn) pre-tax losses. The company raised about £492 million (€545m) via a rights issue in order to pay down some of its debt, but if the pandemic situation does not improve, the company could well fold.
TUI has already taken on another massive financing package worth £1.6 billion (€1.8bn), but the deal with banks, major shareholders, and the German government only saw TUI shares tumble by over 20% when the company tried raising more cash. Experts say TUI is burning cash at a rate of £0.45 billion (€0.5bn) per month.
Investing professionals are eyeing TUI stocks on account of the big win potential if the pandemic ends soon. If a vaccine rollout accelerates, and if summer becomes a big demand period on account of enthusiasm by travelers, then TUI and other companies may pull out of the nosedive. Still, maintaining its fleet of aircraft, cruise ships, and over 400 hotels is going to drag TUI down if summer 2021 becomes a no-fly nightmare like 2020.
The giant tour firm already received a black-eye over delaying refunds to clients. So, the brand is not as strong as it was before the pandemic public relations wise either. The fact the company is eeking out another desperation rescue package from the German government is also not great news. It seems to me the company is no longer solvent, which under normal circumstances would mean the “dead pool” as in Thomas Cook’s case.
Despite the rumors that TUI may be a “buy” stock given the current price and potential, Simply Wall Street begs to differ. The stock is just too volatile and the debt is nowhere near covered by cash flow in light of COVID-19. The confidence the German government has in TUI is a big plus, but nobody knows what travel demand will be even if the vaccine makes tourism viable in 2021. Here in Greece, half the business owners I know are already broke. There are people who have not worked in months. And the situation is mirrored all across Europe. Unless Berlin is prepared to finance vacations to help TUI, only a small percentage of people will be able to afford even a cheap TUI vacation.
Take a look at the U.S. travel market, as one indicator. Since March of 2020, the American travel market has lost $1.75 billion PER DAY! Furthermore, this level of travel spending has caused a loss of $64.4 billion in federal, state, and local tax revenue since March 1st. Almost 60% of those Americans polled recently, say their travel in the coming months will be confined to essential movements only. In Europe, Asia, and other markets, the situation is mirrored. And if we look at job loss as an indicator, the COVID-19 pandemic has been at least 10 times more costly than the 2008 economic crisis – SO FAR. And governments are staggered as well. The IMF says the crisis has already cost over $12 trillion, and the Euro area has been the hardest hit.
I guess it’s fair to note that most of TUI’s customers are from Europe. TUI announced back in August of last year, a jump in demand for travel in summer 2021 of over 145%! In May of 2020, with a deadly pandemic threatening to destroy the world economy, TUI was encouraging travel without even having an inkling of the endgame for COVID-19. Talk about irresponsible, if ever a company were deserving of bankruptcy.
Still, the German government and affiliated partners of the company persisted. For me, the world would be far better off with 200 smaller companies taking over TUI markets. Back in May, 2020, Skift’s Matthew Parsons reported on “TUI’s All-Or-Nothing Summer Recovery Plan Relies on Southern Europe”, meaning mostly here in Greece where the company forged a partnership with the New Democracy government. I won’t get into Hamed El Chiaty, Travco Group, Russian billionaire Alexey Mordashov, and other entities with interests in TUI now, but I cannot leave off without highlighting the arrogance of TUI CEO Fritz Joussen who famously proclaimed his company to be Future Proof!
Let’s face it, this kind of singlemindedness and overconfidence only comes when there are magnanimous guarantees from very high up. And herein lies the biggest problem for the industry overall. For those wondering why Angela Merkel’s government is propping up the interests of Egyptian tycoons and Russian oligarchs, I guess a future report here is in order. For now, though, the seemingly magical powers of a company started by a Prussian mining and metallurgy business continue to astound.
In short, TUI has become too big, too powerful, and a huge part of the problem the world faces with regard to sustainability. The short-term impact of the company going bust, should be weighed against the mid to long-term potential for a better future, it the tourism giant fails. As for potential investors, I guess the unshakable backing of TUI should be considered a “buying” potential. After all, how many companies out there are propped up by the powers that be?
To be continued….