TT. Tui Travel

TUI Travel PLC (TT.LN), Europe's largest tour operator, Tuesday said its fiscal first-quarter operating loss widened due to capacity cuts that trimmed revenue and weak trading at its French airline, but added it was seeing an improvement in the second quarter.

"I expect positive momentum in each of the remaining quarters of 2010 as trading benefits from improved demand in all source markets, merger synergies are delivered, and the benefits of our strategic venture in Canada and our exit from scheduled flying in Germany are realized," Chief Executive Peter Long said in a statement. "For these reasons, I remain confident that we can meet our board's expectations for 2010."

TUI Travel, whose brands include Thomson, First Choice and Airtours, in the three months to Dec. 31 posted an operating loss of GBP107 million compared with a loss of GBP35 million a year earlier. The operating figure is most closely watched among analysts and investors.

Revenue fell 8% to GBP2.53 billion. Capacity fell 19% in the U.K., TUI Travel's largest market which accounts for almost 50% of revenue.

Bookings at French long-haul carrier Corsair, which is suffering from increased competition and yield pressure, remains down 15% year-on-year despite improvements in recent weeks. Long said the company is looking to address issues by examining its flight program. He wouldn't go into details about alternatives but said the company would talk to stakeholders.

Operating losses in Central Europe narrowed as TUI Travel reduced its exposure to German carrier TUIfly, but Long said it would see the benefits in the second quarter.

Due to seasonal distortions, travel companies usually make losses in the first half. As holidaymakers book vacations months in advance, travel operators like TUI Travel didn't experience lower demand in the immediate aftermath of the financial crisis, with the full impact of the downturn emerging only now.

Its pretax loss climbed to GBP166 million from a loss of GBP89 million a year ago. Its net loss jumped to GBP124 million from a net loss of GBP67 million.

The company said net debt expanded due to lower capacity in the winter season, which led to a working capital outflow in the first quarter. It didn't provide details.

For the summer 2010 season, the company has increased capacity in the U.K. by 3% as customer bookings rose 6% from Dec. 1. Load factors, the amount of available holidays that have been filled, was down 1 percentage point to 34% compared with the same time a year ago.

Average selling prices for the summer in the U.K. are up 9% year-on-year, of which 3.5 percentage points is down to costs and 5.5 percentage points related to customers trading up to more expensive holidays, Long said.

Long said he was seeing double-digit increases in recent booking patterns as consumers become more confident about keeping their jobs coupled with recent snow and poor summer weather encouraging them to travel abroad. He said the company would continue to use its market power to lower costs that it can pass on to customers.

In the period from Nov. 22 to Jan. 31, average selling prices for the winter season 2009/2010 were down 2% in central Europe and down 5% in Western Europe. Prices were up 10% in the U.K. for the period to Feb. 7, of which half was related to cost increases and half linked to selling more expensive holidays. Customer numbers were down 11%.

"Pricing remains robust and we are currently recovering input cost inflation in the remainder of the winter season and for the forthcoming summer season," it said. However, it will ensure it has sufficient flexibility to match supply to changes in demand.

At 0948 GMT, shares traded up a penny, or 0.3%, at 259 pence.

-By Kaveri Niththyananthan, Dow Jones Newswires; 4420 7842 9299; kaveri.niththyananthan@dowjones.com

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