TUI Travel and Thomas Cook can survive economic woes

Mergers that created the two largest travel firms in Europe, Thomas Cook Group PLC and TUI Travel PLC have given both companies the flexibility they’ll need to cope with the downturn in consumer travel.

The two travel operators together sell around half of the package holidays that are sold in Europe and nearly two-third those sold in Britain, ensuring them the market dominance that will see them through rises in prices and cuts in capacity that will be necessary to maintain their profitability.

The prices of their shares, however, have been reflecting the market’s fears that the companies face the downturn which has been so devastating to a number of their predecessors, along with the rising cost of fuel and the strong euro, making holidays on the European continent so much more expensive for consumers.

Both firms have seen their share fall by more than 30 percent since the newly-created firms were re-listed on London’s Stock Exchange in 2007.

TUI Travel is trading at approximately 9.1 times its forecast earnings for 2008, and Thomas Cook at 9.2 times, as compared with the FTSE All Share Travel and Leisure Index price-earnings ratio of 7.9, according to data from Reuters.

Last year’s deals, however, which created TUI Travel and Thomas Cook, have transformed dynamics in the travel marketplace.

“The tour operating industry has gone through a radical shift whereby two major players have practically doubled their scale to dominate the pan-European landscape,” said Heidy Rehman, Citigroup analyst.

www.tui-group.com