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Travel industry news

29 Mar 2019

BY James Chapple

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Tui forecasts €200m hit from 737 MAX grounding

Tui says the grounding of Boeing’s 737 MAX aircraft will likely cost the group around €200 million and dent its full-year earnings by nearly 20% – which could rise to more than a quarter.

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Tui forecasts €200m hit from 737 MAX grounding

The group, which operates 15 737 MAXs with another eight scheduled for delivery by the end of May, forecasts the aircraft will remain out of action until mid-July. Its Easter, Whitsun and early summer programme will bear the brunt of the impact.


However, Tui says if it needs to extend measures to mitigate the effect of the 737 MAX being out of action beyond mid-July, the situation should it continue through September 30 could cost the group an additional €100 million, reducing full-year earnings 26%.


Tui’s fleet comprises around 150 aircraft. However, the grounding of the 737 MAX – currently around 10% of its fleet – has resulted in various one-off costs.


These include extending expiring leases for older aircraft due to be replaced by the 737 MAX, leasing additional aircraft, higher fuel costs and “other disruption costs”.


One of the key benefits of the 737 MAX is greater fuel efficiency, the aircraft consuming around 15% less fuel than previous models.


Following the grounding, Tui was quick to confirm it would guarantee customers’ holidays by redeploying its own aircraft and leasing additional capacity.


Tui said with there still being “considerable uncertainty” around when the 737 MAX will return to service, it was basing its outlook on a resumption by mid-July.


“No dates have yet been announced for modifications of the existing aircraft model by the manufacturer, neither for approval of such modifications by the Federal Aviation Administration (FAA) and the European Aviation Safety Agency (EASA),” said Tui.


“Therefore, Tui has taken precautions along with other airlines, covering the time until mid-July, in order to be prepared for the Easter, Whitsun and start of the summer holiday season and to secure holidays for customers.”


The group expects a one-off impact on underlying Ebita (earnings before interest, taxes and amortisation) of around €200 million.


It has revised down its full-year forecast for underlying Ebita from “broadly flat” to minus 17% compared against full-year underlying Ebita for 2018 of €1.177 billion.


However, should the grounding continue, this could rise to 26%.


“Should it not become clear within the coming weeks that flying the 737 MAX will resume by mid-July, Tui will need to extend the aforementioned measures until the end of the summer season,” said the group.


“The current assumption for this additional one-off impact until September 30 is up to €100 million euros. For this scenario, the executive board has also decided today (March 29) to update the guidance for the underlying Ebita rebased for full-year 2019 to up to minus 26% compared with full-year 2018.”

 

The 737 MAX was grounded earlier this month following a second fatal crash involving the aircraft in the past five months.

 

Lion Air flight 610 came down in the Java Sea shortly after taking off from Jakarta last October, killing all 189 people on board.

 

This was followed by Ethiopian Airlines flight 302, which crashed on March 10 en route from Addis Ababa to Nairobi. All 157 people on board were killed.

 

Boeing has grounded the aircraft pending an update to the control system at the centre of the investigations into the two crashes.

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