TUI Travel Targets Caribbean Hotspots Aided by 787, Strong Pound

Aug 08, 2014 7:23 am ET

Aug. 8 (Bloomberg) -- TUI Travel Plc, Europe’s largest tour operator, plans to expand its program to the Caribbean as more efficient Boeing Co. 787 Dreamliner aircraft and a stronger British pound boost the profitability of destinations there.

TUI Travel will expand the winter offering to Jamaica and Mexico, where it’s already the biggest operator from the U.K. ahead of British Airways and Virgin Atlantic, and also to the Dominican Republic, Chief Executive Officer Peter Long said.

“We are very much focused on further growth in our long- haul destinations,” Long said today on a conference call. “We see huge growth opportunities on the back of the 787s, and the current exchange rates -- the sterling-dollar -- make those destinations particularly attractive.”

TUI is shifting focus after political instability in Egypt, once a key attraction beyond Europe, prompted a 30 percent capacity cut there over two years. The 787 allows the company, based near London Gatwick airport, to operate longer trans- Atlantic routes more efficiently than rivals with older jets, while the U.S. dollar’s 8 percent drop versus the pound in a year has been tracked by a host of North American currencies.

TUI, which has revived merger talks with parent TUI AG, introduced the 787 last year, becoming an early European customer. The carrier has eight in the fleet out of 15 on order, six with its Thomson unit based at the U.K.’s Manchester, East Midlands, Glasgow and Gatwick airports serving destinations such as Sanford, Florida and Cancun, Mexico. One plane is in Belgium with Jetairfly and another at Arkefly in the Netherlands.

‘Huge Differentiator’

The 787 has delivered on Boeing’s promised efficiency gains, while its bigger windows, greater headroom and better seat pitch have also made it a hit with passengers.

“On long-haul flights of 10 hours or so, the in-flight experience is very important,” Long said. “It’s a huge differentiator.” Four of TUI’s six airlines will ultimately operate the Dreamliner.

The pound has meanwhile strengthened 9.7 percent in the past year against a basket of 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes.

TUI Travel’s third-quarter profit rose 21 percent to 92 million pounds ($155 million) adjusted for currency swings and the timing of Easter, as package-tour prices rose and more clients booked online, it said in a statement.

TUI is cutting costs and is increasingly selling vacations direct to customers amid weak economic growth in Europe. Unrest in countries such as Egypt and Russia contributed to a 2 percent drop in customers, excluding adventure and sports excursions, depressing revenue by the same degree to 3.8 billion pounds.

Offerings exclusive to TUI amounted to 71 percent of sales, and 88 percent of the summer program has already been sold.

TUI Travel shares traded 0.8 percent lower at 352.80 pence as of 11.20 a.m. in London. They’ve declined 15 percent this year, compared with a 31 percent drop at Thomas Cook Group Plc.

The merger talks revived in June after breaking down last year are aimed at agreeing an all-share, nil-premium deal that would create the world’s largest tourism business.