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TUI Travel sees strong 2014 as customers spend more on foreign holidays

By Sarah Young

LONDON (Reuters) - TUI Travel (LSE:TT.), the world's biggest tour operator, beat forecast profits thanks to strong sales of more expensive holidays in the UK and Germany, and said it would hit ambitious 2014 targets as people spend more on foreign holidays.

The British group, which owns the Thomson and First Choice holiday brands, posted a 13 percent rise in underlying operating profit on Tuesday - higher than its upgraded 11 percent guidance - as a result of the growing popularity of higher-margin holidays, such as all-inclusive deals, and packages to further-away destinations.

The company said it was confident of delivering its target for underlying profit growth of 7 to 10 percent next year and for the following four years, given encouraging winter trading and early summer holiday sales.

Chief Executive Peter Long noted in particular that TUI was benefiting from an improvement in sales of holidays to Egypt after Britain's foreign office recently relaxed some of its travel advice.

TUI hiked its final divided by 17 percent to 9.75 pence per share, bringing the full-year payout to 13.5 pence per share, 15 percent higher than last year.

"In the UK, given improving consumer confidence, rising house prices, economic growth and increasing employment, we believe that the trading outlook for summer 2014 is increasingly positive," said Numis analyst Wyn Ellis, who upped his target price for the stock to 425 pence from 400.

Shares in the company were down 0.4 percent at 382.9 pence at 1145 GMT, having earlier reached 396.7 percent.

Investec analyst James Hollins said TUI's guidance for a flat performance in the first half of the year, excluding Easter which in 2014 falls in its fiscal second half, could put pressure on the company to meet its profit growth targets.

"This is not a stretch, but also not a guarantee. We remain sceptical on achieving returns targets and we retain our "sell" (rating)," he said.

OUTPERFORMANCE

TUI's underlying operating profit on a constant currency basis came in at 555 million pounds ($909.45 million) for the year to the end of September, on revenue which was 4 percent higher, and the company said improvements to its online presence and back office and IT cost savings also helped.

Pretax profit of 473 million pounds beat a consensus forecast of 460 million pounds.

The group's UK and German businesses performed particularly strongly, posting profit growth of 27 percent and 30 percent, in contrast to France, where profits were 28 percent lower.

Long said the French business was being restructured and would take until 2014-15 to get back to break-even. Weakness in that unit, which accounts for less than 10 percent of revenues its mainstream business, stemmed from pressure on incomes and the fact that French holidaymakers tend to travel to Tunisia and Egypt, both affected by political unrest, he said.

French holiday operator Club Med (PAR:CU) earlier this month posted an 11 percent drop in operating profit for the year ended October 31, also citing political unrest in North Africa and tough economic conditions.

Back in the UK, rival travel firm Thomas Cook (LSE:TCG), recovering from a dramatic slump in sales over the last two years, also had a strong year. Last month it posted a forecast-beating 49 percent leap in earnings for the year to September 30.

(Reporting by Sarah Young; Editing by Kate Holton)