TT. Tui Travel

TUI Travel PLC (TT.LN) Tuesday followed smaller rival Thomas Cook Group PLC (TCG.LN) with plans to cut costs that will include job losses in the U.K., but it still expects its full-year results to be in line with previous guidance.

Europe's largest travel operator said it will hit its target after bad weather across Northern Europe encouraged consumers in that region to take vacations abroad and as it attracted more customers to its stable of strong brands after the recent failure of smaller tour operators that left holiday makers stranded and out of pocket.

TUI Travel said it is reviewing its cost base to increase its competitiveness that will "further underpin delivery targets," and expects to incur additional charges for the 12 months to Sept. 30 relating to restructuring costs for Corsair and the U.K.

A spokeswoman for TUI Travel said the company is already looking for voluntary redundancies at Luton, England, where its Thomson and First Choice brands are based. She declined to comment on how many jobs it was looking to shed or the amount of savings it was targeting, but added that it also was looking at generating savings from its suppliers and from back-office operations.

TUI Travel's trading appears more encouraging than that reported by Thomas Cook, with TUI Travel suggesting the weak trading in the U.K. during May and June had stabilized.

Thomas Cook Chief Executive Manny Fontenla-Novoa last week said he expects 2011 to be "another tough year" after describing the U.K. in 2010 as worse than the aftermath of 9/11.

Thomas Cook, which last week announced a profit warning, said it continues to be hit by sluggish demand in the U.K. after the soccer World Cup finals, the general election and concerns about public-sector spending cuts dented consumers' confidence.

Thomas Cook also is targeting a cost-cutting drive in the U.K. that will include job cuts.

In contrast, TUI Travel said it had performed well in the market for late bookings for the summer 2010 season, with the majority of holidays originally available now almost fully sold. Typically, the summer season runs through the end of October.

"This shows that demand for our holidays remains healthy despite the previously highlighted shift towards a later booking trend in the U.K.," said TUI Travel Chief Executive Peter Long.

Despite seeing positive trading trends for future seasons, the company remains cautiously optimistic and maintains capacity for coming winter and summer seasons at approximately the same level. In the Nordic region for the winter season, it is reinstating capacity that was withdrawn last winter.

The spokeswoman said the company has the flexibility to increase capacity should market conditions improve.

TUI Travel said its winter 2010/11 season was trading well across all source markets and that in line with its strategy to offer differentiated products, it has expanded concepts such as Club Nouvelles Frontieres in France, while launching new products such as Thomson Couples in the U.K.

It said trading for summer 2011 also had started well in the U.K. and Nordic region, the only two source markets currently on sale.

Those differentiated products can be bought only through TUI Travel brands, and command higher prices and margins.

While there has been particularly strong demand for its differentiated products, the company retains a prudent outlook for the coming financial year.

The company managed to narrow net debt more than expected after a strong working capital performance. That was driven by an increase in customer payments received in advance because of strong booking activity as well as higher levels of deposits and earlier final payments for holidays. The company also renegotiated the level of pre-payments with suppliers, in particular hoteliers.

For the summer 2010 season, average selling prices in the U.K. were up 10%, with cumulative bookings at Sept. 26 up 2%.

Across Central Europe, average selling prices dropped 2% with total sales up 3%. Total customers rose 5%. Average selling prices across Northern Europe were up 9%.

At 0742 GMT, TUI Travel shares traded up 7 pence, or 3.2%, at 224 pence, making it the biggest gainer in the benchmark FTSE 100 index, which traded up 0.3%. The positive statement pushed Thomas Cook's shares up 2 pence, or 1.2%, to 175 pence.

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

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