Tui Travel bets on Boeing with 150 new planes

The tour operator has put in a provisional order for 60 new planes, as part of a plan to revamp its ageing fleet and prevent further losses.

by Michael Northcott
Last Updated: 18 Nov 2013

If your business is jetting people all over the world, fuel efficiency is a biggie. And given that its financial position is a bit precarious these days, Tui has decided to renew a load of its planes as a way of reducing its fuel overhead in the long term. It announced today that it will buy as many as 150 Boeing 737 Max aircraft, and it has managed to get an undisclosed discount on the ‘recommended retail price’ of $6bn for the first 60.

The deal leaves the option open for Tui – which owns Thomson and Corsair, too – to buy another 90 at the reduced rate between January 2018 and March 2023. It’s quite an expensive way of mending your bottom line, and by contrast, also-ailing Thomas Cook is mulling getting rid of its airline altogether. Nonetheless, Tui’s move is likely to put easyJet under more pressure to finally get its hands on another batch of jets, even though Stelios has been dousing the thrusters on that one

Earlier this month, the operator reported that pre-tax losses rose to £457m in the six months to the end of March thanks to a big dip in bookings to North Africa and Thailand. The loss compares with a £366m loss a year ago, as the challenging economic environment, severe flooding in Thailand last year and North African unrest left people reluctant to venture abroad. It's worth noting that travel companies often report depressed figures in the first half of the year, as fewer people travel during that period.

Tui Travel’s top dog, Peter Long, says: ‘Being able to offer our customers the most advanced, comfortable aircraft, whether they are travelling with us to short or long-haul destinations, while reducing our environmental impact, will only strengthen our position.’ In the long term, he may be right, but the FTSE 100 company is going to be mortgaged up to the hilt, so to speak, given that its market capitalisation is only two-thirds of the debt it will need to buy the first 60 planes.

Still, given that rising fuel costs now mean it represents 40% of the cost base in the airline industry, getting more efficient planes is an obvious priority. Shareholders will have to approve the purchase, but with losses increasing year-on-year, they may well recognise that something drastic needs to be done…

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