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of Tui (LSE:TUI) shares fell 4.6% today amid a sea of red in the stock market. This includes a 50% decline over the past year. A lot of attention is paid in the travel sector. IAG And Light jet, TUI is a more diverse tourism operator. It also generates revenue from the flight segment, hotels, cruises and other holiday add-ons. Could this expansion of operations help TUI’s share price recover?
Problems in the past year
The business has been hit in a number of ways over the past 12 months. The hangover from Covid-19 was still evident until recently, with self-isolation requirements and travel restrictions limiting the ability to travel abroad.
Although much of it was resolved at the start of this year, other problems have plagued the travel and tourism sector. Rising commodity prices due to the war in Ukraine have made jet fuel more expensive. This reduces the profit on flights.
We’ve also seen a rapid increase in inflation in favor of cheaper domestic UK travel, prompting many to consider a package holiday in Europe.
TUI has particularly struggled with cash flow and cash management. That means you needed to raise more capital in January and October last year. These were not small amounts either, the increase in October reached €1.1bn!
All the above mentioned factors are the factors that contribute to the decline in the share price during this period.
Future implications for TUI’s share price
The stock is down 69 percent over the past three years, while earnings are down 75 percent over the same period.
If this correlation is strong, it’s reasonable to assume that if the business is able to grow revenue in the coming year and beyond, the price should rise as well. Last month’s final quarterly results offered some green shoots. Revenue was €4.4bn, up significantly from €649m in the same quarter last year.
The hotels and resorts arm was profitable, as was the wider holiday experiences segment. The biggest loser area continues to be airlines. This suggests to me that if fleet capacity continues to improve, group finances will generally benefit.
My concern is that despite the high level of growth, overall profitability is still lacking. TUI lost €331m in the last quarter, and can only run on debt and raise new capital long-term. I think it will take some time before the business gets back to health.
If I were forced to invest in the travel and tourism sector, I would consider investing in TUI. However, I am not limited to this. So I think there are very interesting sectors with low risk that have more growth potential right now. Accordingly, I saved your money and did not spend it anywhere else.