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TUI freezes pre-payments and suspends hotel contracts

Friday, March 13, 2020

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TUI is freezing pre-payments and suspending contracts with some of its hotels as it struggles to cope with a severe downturn in global travel caused by coronavirus. The hoteliers in Spain and Greece said that TUI was in talks with a number of operators to invoke “force majeure” clauses in contracts and temporarily stop payments.

 

The company said that they are in close contact with our hotel partners worldwide, jointly reviewing options for capacity management, to mitigate the impact for both Tui and its partners. TUI also said it had frozen recruitment and was considering reducing staff hours.

 

The company’s older customer base and its exposure to the embattled cruise industry make it very vulnerable to the effects of measures taken to try to stop the spread of the disease, which is now present in 114 countries.

The world’s third largest cruise line, Princess Cruises, announced on Thursday that it would halt operations for two months. Princess operates the Diamond Princess ship, which had some of the early cases of coronavirus. The shares in TUI have fallen 57 per cent in the past month and the cost of insuring its debt has jumped almost fourfold since mid-February.

 

One Greek hotelier who contracts around 15 per cent of his rooms to Tui said that forward bookings were down around 40 per cent and that as tour operators moved to freeze payments he would also be forced to cut payouts to suppliers.

 

The first quarter of the year is always difficult for tour operators: demand for holidays is low and they must make advance payment to hoteliers for summer bookings. Tui has also been affected by the grounding of the Boeing 737 Max aircraft — this cost the company €293m last year and the estimated earnings hit in 2020 is up to €400m.

 

In addition, there has been a surge in coronavirus cases in Spain this week. Spain is by far the largest market for UK overseas tourism with 16m travelling there last year, according to the Association of British Travel Agents.Becky Lane, an analyst at Jeffries, said that Tui was “more stretched” than its peers and that a large amount of the €2.9bn cash on Tui’s balance sheet at the end of 2019 would be from customer deposits that might have to be refunded.

 

According to its latest trading update in February, TUI had net debt of just over €2bn.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

@Financial Times
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