TUI and Jet2-owner Dart capitalise on Thomas Cook ‘game-changer’
The demise of British travel giant Thomas Cook could provide a significant boost to other tour operators, according to analysts covering the sector who have had time to weigh up the potential gains for various London-listed stocks.
Shore Capital analyst Greg Johnson says Thomas Cook’s collapse ‘could be a game changer for incumbent operators’ given it had 22m customers and £10bn in revenue.
He adds: ‘At the very least, tighter market conditions, coupled with the unwinding of 737-Max costs, supports a recovery in profitability going forward.’ The 737-Max element refers to the worldwide grounding of certain Boeing plans amid safety concerns.
Two of the biggest potential beneficiaries from Thomas Cook’s demise are tour operator TUI (TUI) and Jet2-owner Dart Group (DTG:AIM). Shares in the two companies jumped 9% and 15% respectively on 11 October after TUI spelled out its plans and Dart revealed how it had benefited from the collapse of its former rival.
TUI will add an extra 2m airline seats to take advantage of the gap in the market left by Thomas Cook’s demise. It will offer more departures from UK regional airports and boost the number of flights to locations such as Turkey and Greece.
Johnson at Shore Capital says TUI generates around €40 profit per passenger, and so adding another 2m seats could provide an extra €80 to €90m to TUI’s group profit, while the firm’s hotel division could also benefit.
TUI’s shares jumped almost 9% to £10 last Friday, though Johnson believes the ‘opportunity’ from Thomas Cook’s fall is not reflected in the company’s current valuation, with its ‘higher quality cruise and hotels worth £11.50 per share alone’.
Analysts at investment Morgan Stanley are a little more cautious. They believe the extra capacity will boost TUI’s profits, but add: ‘Modelling the impact is difficult, particularly given TUI will need to take out additional aircraft leases at a time when its MAX grounding timetable is unclear.’
Dart soared 15% last week to around £10.82 after it said it was experiencing increased levels of customer demand since the liquidation of Thomas Cook. It raised full year profit expectations though management stressed they were ‘very cautious’ in their outlook.
Three weeks ago Dart added more than 170,000 seats to its Jet2 airline schedule between October and March and reported ‘unprecedented’ demand. Morgan Stanley analysts say they were told by TUI that it has seen ‘busy trading’ since Thomas Cook’s collapse, including its busiest day ever on the day Thomas Cook confirmed it would go into liquidation.