TT. Tui Travel

TUI Travel PLC (TT.LN) Thursday said it had identified measures that will save it another GBP100 million a year in cost savings over the next three years as it reported that bookings for this summer are so far running ahead of last year's levels.

The company, created in 2007 by the merger of First Choice Holidays PLC of the U.K. with the tourism operations of Germany's TUI AG (TUI1.XE), has made cost savings each year since then as it has consolidated the operations of the former companies.

It said that it had now identified a further GBP100 million of cost savings--GBP60 million in its turnaround business and GBP40 million by further streamlining its U.K. operations, including revamping reservation systems and simplifying back-office functions. It said restructuring costs associated with the savings would be about GBP150 million, two-thirds of which will be booked in the current financial year.

The drive for further cost savings comes as airlines and travel companies face steep increases in costs, particularly for jet fuel. TUI Travel said input costs have risen by over GBP500 million in the U.K. alone since the company was created. However, it said it has already hedged 87% of its exposure to jet fuel, 88% of its exposure to the euro and 87% of its exposure to the dollar for the summer season and the rates it has achieved means it is confident that input cost inflation will be negligible this year.

In a statement ahead of a presentation the company is giving to investors and analysts on its strategy, TUI Travel said that while it was still cautious about the economy and had concerns about the geopolitical environment, summer bookings are ahead of last year, including in the U.K.

U.K. bookings are up 8% compared with last year, the Nordic region up 12% and Germany 15%.

It said the ongoing winter season was also still strong, with U.K. cumulative bookings up 3% despite December's harsh weather, which prevented some consumers from visiting its stores, and the cancellation of flights to Tunisia since Jan. 15 due to political problems and civil unrest. It said booking volumes in the U.K. had improved since the weather improved and are up 14% on the year so far in January.

The company said the improved trading, combined with a continued turnaround of underperforming businesses, particularly Canada, means it expects its operating profit for its fiscal first quarter ending Dec. 31 to be up over GBP20 million, excluding one-off items. It will announce full results for the quarter Feb. 3.

In terms of strategy, TUI Travel Chief Executive Peter Long said the company will continue developing differentiated holiday products--holidays or holiday components that competitors don't offer--because it expects margins on commoditized products to come under further pressure. With more customers booking online, the company will also seek to expand its online offering, reduce costs and better control distribution.

Long said TUI Travel would also invest in its accommodation-only business, particularly in Asia.

-By Steve McGrath, Dow Jones Newswires; 44-20-7842-9284; steve.mcgrath@dowjones.com

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