TUI has secured €1.8bn in additional funding which CEO Fritz Joussen said would allow the group to secure “liquidity for a continuing pandemic in 2021”.
The company said that it expected the pandemic situation to improve in the course of the first half of 2021.
TUI reached the agreement with the Economic Support Fund, KfW, its banks and the largest single shareholder Unifirm - the Mordashov family. The package consisted of silent participations of the WSF, a further credit line of the KfW, guarantees and a capital increase with subscription rights, which was to be resolved at an extraordinary general meeting of TUI in January 2021.
The group said it was taking further precautions in view of the rising number of infections since autumn, strict travel restrictions in many countries and the resulting shorter booking times of customers.
The financial package was intended to ensure that the company could bridge the gap if the pandemic persisted in 2021.
Joussen said: "Before the Corona pandemic, TUI was a very healthy company. The market is intact, the demand is there. But we have not been able to generate any significant revenues since March. Our integrated business model allows us to react very flexibly to short-term changes in the pandemic situation, just as we successfully ramped up our travel programme for a few weeks in July after the first wave. People want to travel, tourism remains a growth industry and an important sector for stabilising the southern euro area.
“The financial package provides the security to look consistently ahead and to prepare the group strategically and structurally for the time after the pandemic. With these measures, the group is securing liquidity for a continuing pandemic in 2021, while at the same time improving our balance sheet structures in the long term.”
The proceeds of the capital increase will be used to repay €300m in senior notes due in October 2021 and so will provide a significant contribution to the extension of TUI’s maturity profile.
The financing measure shall also include a guarantee credit facility in the amount of €400m. The guarantee credit facility will be supported by a state guarantee, potentially including the federal states.
Including the additionally agreed financial package, TUI had financial resources and credit facilities of €2.5bn as at 30 November.
In September TUI Group said that it would “evaluate options” to achieve the optimal balance sheet structure to support the business over the long term.
The comments came as the company announced that it had cut winter capacity by 40%.
TUI said that it had launched a programme to try and cut costs by 30% across the whole group, with the goal of a permanent annual saving of more than €300m, with the first benefits expected to be delivered from full-year 2021 and full benefits to be delivered by full year 2023.
Joussen said: “Leisure holidays remain important to customers and have been one of the most missed activities 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.
“Destination availability 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.”
In its Hotels & Resorts division, the group reopened 157 hotels, around 44% of total group owned portfolio by the end of August across its worldwide destinations.
All three cruise operations remained suspended, adhering to both German and UK government advice on cruising.
The operator said that Summer 2021 capacity had been “cautiously adjusted by 20%”, with flexibility to adjust as it gained more visibility. TUI said: “Bookings were currently up significantly as customers both rebook holidays from this Summer and look to secure new holidays early”.
Bookings for Summer 2020 were down 83%.
Insight: TUI found its cash drained not only by the travelling public being stuck on its collective sofa, but by that same public demanding the money it had already forked over, back. And fair enough.
With the immediate future of travel looking rubbish - as Arne Sorenson said last week, it’ll get worse before it gets better - the company knows that both the ability to travel and the ability to pay for travel are likely to be restricted for a while.
It was also clear that the company, which has not shied from M&A in the past, is looking to see how it can deploy its cash to come out dominant. We note that plenty of hotels are coming onto the market in Spain and that plenty of travel distributors are under pressure. Plenty of pickings to be had.