TUI Travel hails profits record

Thomson and First Choice owner TUI Travel reported another year of record results today as its new line of luxury all-inclusive deals kept up demand for package holidays.

Thomson owner TUI Travel has benefited from its focus on luxury all-inclusive deals.

Thomson and First Choice owner TUI Travel reported another year of record results today as its new line of luxury all-inclusive deals kept up demand for package holidays.

Europe's biggest travel company shrugged off the impact of this summer's heatwave to post its highest ever earnings across the business and in its UK arm, with overall underlying pre-tax profits surging 21% to a higher-than-expected £473 million in the year to September 30.

Package holiday sales rose 5% in the UK, helped by its focus on more profitable unique holidays targeted at groups including couples and those looking for luxury resorts, such as Sensatori and SplashWorld, which now account for 83% of all departures.

UK underlying earnings rose by more than a quarter - 27% - to £251 million.

But despite profits hitting yet another all-time high, TUI revealed it paid just £14 million of UK corporation tax as it continues to offset losses incurred following a restructuring launched six years ago.

It courted controversy last year when it admitted paying zero UK corporation tax.

But the group said it paid another £96 million of corporation tax in other countries and expects to pay tax of around 20% of underlying pre-tax profits as its tax bill begins to normalise.

Chief executive Peter Long said: " The year has been outstanding and highlights that our strategy of delivering unique holidays sold directly to our customers is the right one."

On a bottom line basis, pre-tax profits fell 10% to £181 million as it was hit by write-downs in its specialist and activity division and embattled French tour operator, which saw annual losses widen to £60 million.

TUI said current trading was "robust" with 60% of its 2013/14 winter holidays already sold, while it added it was pleased with demand for next summer despite strong comparatives.

It has sought to minimise the impact from travel restrictions amid the political unrest in Egypt - traditionally a popular winter destination - by cutting its service to the country, which now accounts for less than 5% of its programme.

Its markets now have Egypt programmes back on sale, but it said customer demand remained lower than a year earlier.

Excluding Egypt, UK winter holiday bookings are 1% higher, while it has seen a 6% rise in average selling prices.

Mr Long said holidaymakers were increasingly turning to all-inclusive deals for the "greater certainty" of having everything paid for up front.

The growing popularity of these holidays is also a "win, win" for the firm, he added.

"We are seeing average selling prices increase because they're spending more of their total spend with us and less in the resort," he said.

He said Britons were saving up for big annual holidays despite finances remaining stretched, but cautioned over the consumer outlook.

"Clearly the economic recovery is very positive and consumer sentiment has improved, however we have to be mindful that consumer income is still under pressure," he said.

The group is expecting first half losses to widen due to the timing of Easter in 2014, although with this stripped out it expects half-year results to remain broadly in line with a year earlier.

TUI stuck by its five-year annual growth target for a 7% to 10% hike in group underlying earnings, although its struggling French arm is not expected to break even until 2015.

The division has been particularly impacted this winter by the Egypt travel restrictions, as it is a key destination for French holidaymakers, and sales are 27% lower this season.