3Q Profits of TUI Travel (LON:TT.L) Soared 21 Percent

The biggest tour operator company of Europe- based on revenues, TUI Travel (TT.L), is expected to get back on the track. Analysts are confident that the company will be able to meet its profit growth forecasts for the year, especially after the company has seen an increase of 21 percent in its third quarter’s profits.

The British TUI Travel (TT.L) is planning on entering into a merger deal with its Germen counterpart, TUI AG (TUIGn.DE). According to the sources, the deal will create one of the biggest tourism groups in the world as it would mean that the businesses of both the companies would be combined together. Rumors have it that the deal will be sealed for around $7.5 billion. The companies are expected to announce the merger deal by September 19, 2014.

The company could not re-affirm its guidance outlook on the last business day, August 8, due to some takeover rules, but rumors have it that the company targets around 7 -10 percent increase in the operating profits of the company, mainly on the basis of 12 months of its constant currency.

Peter Long, the chief executive of the company, refused to comment on the forecasts of the year 2014 on the basis of takeover restrictions. He further said that the company did not release its guidance outlook and there was no business motive behind that step.

In June, TUI Travel (TT.L) and TUI AG (TUIGn.DE) announced that they would merge the companies on all-share basis, with no premium deal at all. It will not be untrue to say that the investors and traders were expecting such a deal when TUI Travel (TT.L) was created from a merger of TUI AG travel business and the Britain’s first choice. TUI Travel (TT.L) started its business in 2007 after the original companies merged together.

TUI Travel (TT.L) had been planning on making a deal with TUI AG (TUIGn.DE) since 2013, but the latter company was insistent that a deal was not possible due to the different share prices of both companies.

A researcher at Numis said that the merger plan was unattractive for the shareholders of both companies since TUI AG’s (TUIGn.DE) shares were underperforming in the market at that time, which meant that the shareholders of TUI Travel (TT.L) were at a loss.

Wyn Ellis, the researcher at Numis, also changed TUI Travel’s (TT.L) ratings from ‘hold’ to ‘add’. He further stated that both the companies were showing positive performances, and hence, chances are that the deal will go through.

The shares of TUI Travel (TT.L) lost around 9 percent of their share prices since the day the merger deal was put forward. Similarly, the shares of TUI AG (TUIGn.DE) were down by 14 percent.

Despite the reduction in its share prices, TUI Travel (TT.L) stood firm in the market as around 71 percent of its revenues come from its summer booking business, making it unique from its competitors who offer deals akin to commodity holidays. The chief executive of the company said that the ‘unique’ strategy of TUI Travel (TT.L) had given the company an advantage over its competitors.