Coronavirus: TUI aims to reduce costs permanently by 30%

London-listed German travel firm TUI (TUI.L) said in a trading update that it plans to permanently reduce its overhead cost base by 30% amid its battle to survive during the coronavirus pandemic.

The group said in a trading update, ahead of its publication of its full year results, that while the worldwide travel suspension has hit the company, it was still “on track to deliver a strong result for financial year 2020.”

It pointed out that cash fixed costs were reduced by more than 70% during the immediate lockdown period and it was the first tour operator to successfully restart operations across multiple markets and destinations, helped by “the advantage of our integrated and diversified business model.”

In August, TUI confirmed that it would receive an additional €1.2bn (£1.08bn, $1.4bn) aid package from the German government to help it survive the fallout from the pandemic.

“The €1.2bn stabilisation package strengthens TUI’s position and would provide sufficient liquidity in this volatile market environment to cover TUI’s seasonal swing through winter 2020/21… and in the case of any further long-term travel restrictions and disruptions related to COVID-19,” TUI said in a statement.

The company had already been approved for €1.8bn loan from KfW, the country’s state development bank in April.

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“We are on track to complete the additional stabilisation package provided by the German Federal government as announced on 12 August with waiver approval secured from our Senior Notes bond holders. Our Global Realignment Programme is firmly underway with digitalisation initiatives accelerated throughout the Group,” said Friedrich Joussen, CEO of TUI on Tuesday.

“TUI will emerge a stronger, leaner, more digitalised business and is well positioned to benefit from the expected recovery."

Last month, TUI swung to a pre-tax loss of more than €1.4bn (£1.3bn, $1.6bn) in its third quarter, as the coronavirus pandemic forced the world’s largest tour operator to enter “crisis mode.”

Group revenue fell by 98% to just €71.8m in the three months to the end of June, reflecting what the company called “business standstill” for most of the quarter.

TUI said that it partially resumed operations from mid-May, but the travel operator said that volumes remained significantly lower than usual summer levels.

The firm said that it made an underlying loss before interest and taxes — its preferred profit metric — of €1.1bn, due to impairment charges related to the pandemic and a surge in costs from ineffective hedging contracts.

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“We have successfully restarted our operations; customers are enjoying their holidays with newly adapted hygiene protocols and we have taken 1.4 million customers on their holidays since restart1,” said Friedrich Joussen, CEO of TUI.

“Destination availability at present is highly influenced by government policy and development of the pandemic, meaning the environment remains volatile, and is likely to remain so for the next few quarters.

"Leisure holidays remain important to customers and have been one of the most missed activities2 during the pandemic, with leisure travel expected to recover faster than business travel. Our integrated model, underpinned by our trusted and leading brand, offering differentiated products and attractive value propositions, combined with proven flexibility in a volatile environment, means we are strategically well placed to benefit as leisure travel volume recovers over the coming seasons.”