TUI Travel bookings strong, fuel a headache

Europeans are refusing to give up their summer holidays despite volatile economic conditions, the region's No 1 travel firm TUI Travel said on Tuesday. However it warned that spiking airline fuel prices are becoming a real headache for operators and predicted a rise in holiday prices.
Thomson, Airtours and First Choice owner TUI said strong demand for breaks combined with a reduction in the amount of holidays on sale across the industry, meant it was on track to meet 2008 analyst profit forecasts of around 316 million pounds ($636.4 million).
Despite gloomy predictions about consumer spending, an industry wide reduction in holidays on sale is bolstering prices. Last summer's poor weather in Britain and Northern Europe has meant sun-starved Britons Scandinavians and Germans are booking early while bumper winter snow across the Alps has boosted ski trip sales.
And England, Scotland and Wales' failure to reach the Euro 2008 finals also means many British soccer fans have decided to go on holiday instead. TUI Travel, created last year from a tie-up of TUI AG's travel division and Britain's First Choice, said exotic getaways to more far-off destinations such as Egypt and Turkey were currently in vogue.
In the first three months of 2008 sales in the UK and Scandinavia rose 9 percent compared with the same time in 2007. In Germany, Switzerland and Austria summer sales were up 6 percent while sales from France, Belgium and Netherlands rose 4 percent. Shares in the firm rose 6.7 percent by 1128 GMT to 259-1/2 pence, clawing back Monday's losses.
"Forward bookings look very strong with 47 percent booked in the UK and between 30 percent and 45 percent in continental Europe," said analysts at J.P. Morgan. "Capacity cuts have resulted in higher load factors and 20 percent less product left to sell than in the previous year."
TUI Travel's chief executive warned however that the spiralling oil price was becoming a real headache for the firm. "We have hedged up until the end of the summer, we have got some got some hedges in place for winter... at $110 a barrel we are not rushing out because we think there is a spike at the moment," Chief Executive Peter Long told reporters.
For travel firms like TUI and main rival Thomas Cook the price of filling up planes accounts for around 6-8 percent of the total price of putting together a holiday. Long said consumers would have to pay more for holidays as a results.
"If I look to future seasons we are potentially facing a 20 percent increase in fuel costs... We will have to raise our prices accordingly." To help cut costs TUI is planning to merge its low-cost TUIfly airline with Germanwings, a subsidiary of 49 percent Lufthansa-owned Eurowings.
Long said it was now close to finalising the deal. "We are still in detailed talks with Lufthansa... I'm confident in a successful outcome. I guess in terms of the time scale it's broadly 6-8 weeks."
Travel firms traditionally make a loss in the first half of the year as they book hotels and aircrafts in preparation for the summer rush. TUI Travel reported a 50 percent improvement in its underlying loss before tax in the three months to end December as it narrowed to 60 million pounds. The company is expected to post a 2008 pretax profit of 316.5 million pounds on average, according to a Reuters Estimates poll of six analysts. "I remain confident that the group will meet the board's expectations for the year" said Long.