TUI, the world's largest holiday company, said it planned to repay COVID-19 support through a capital raising next year after a strong summer helped it swing back to profit and it forecast a "solid" 2023.
Germany-based TUI, which operates holidays, hotels, cruise ships and an airline said it would start to cut its dependence on the German state, whose help enabled the group to survive the pandemic.
Chief financial officer Mathias Kiep said TUI would need to raise between €1.6 billion and €1.8 billion through a capital raise to start repaying its German loans.
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That news weighed on its shares. The stock dropped 6% to 138 pence in morning trading, paring gains made over the last month. It has already lost 40% of its value in 2022.
"The extent of potential equity dilution will depend on prevailing appetite and share price," said Stifel analysts, noting that sanctioned Russian shareholder Alexei Mordashov cannot participate in any rights issue.
TUI said 2023 would be solid and it guided to a significant increase in earnings. For the year to end-September, TUI on Wednesday 14 December posted underlying earnings (EBIT) of €409 million, compared to a €2 billion loss the previous year.
Bookings for next year were stable and average prices higher, TUI said, adding that it was aware of the difficult economic outlook.
European consumers are grappling with the highest levels of inflation in a generation but to date demand for holidays has proved resilient. Strong appetite for travel meant Lufthansa, Europe's second biggest airline, upgraded its 2022 profit forecast on Tuesday.
TUI's new chief executive Sebastian Ebel, the former CFO who is two months into the top job, said that holidaymakers were trading down, choosing cheaper destinations, like Turkey over Spain, or Egypt over the Dominican Republic.
The group was also seeing a normalisation in travel trends after last summer, when pent-up savings from two years without travel in the pandemic meant people took longer breaks and picked more expensive hotels.
TUI's capital raise plans will need approval from shareholders at the group's annual meeting in February, and the exact sum raised will depend on demand during the current winter season, it said.
The new funds will be used to repay Germany's Economic Stablisation Fund (WSF) a sum between €730 million and €957 million. In return it will receive back the equivalent rights to its shares. It also plans to cut it credit lines from development bank KfW.