Vertical Integration And Digital Expansion Will Create Unique Travel Experiences

Key Takeaways

• Vertical integration and digital investments are boosting occupancy, direct bookings, margin improvements, and efficiency through cross-selling and standardized platforms.
  
• Geographic expansion, diversified offerings, and sustainability initiatives position TUI to capture new demand, support growth, and enhance resilience against regulatory changes.
  
• Margin pressures from competition, shifting consumer preferences, and macro risks are compounded by costly transformation efforts and escalating sustainability-driven operating costs.

Catalysts

Provides tourism services worldwide.

• TUI is leveraging its vertical integration across airlines, hotels, cruises, and ground experiences-resulting in higher occupancy rates, increased daily rates, full cruise ship utilization, and the cross-selling of high-margin, differentiated products. This integrated model positions TUI to drive earnings and margin improvements, especially as more of its portfolio shifts to exclusive and unique offerings.
  
• The company's investments in digital platforms, dynamic packaging, and mobile apps (with app sales growing 40%) are increasing the share of direct bookings, reducing distribution costs, and enabling data-driven personalized offers. The rollout of standardized global IT platforms and growing dynamic product content are expected to lift net margins and reduce the cost base in future periods.
  
• TUI's geographic and product expansion-including growth in new source markets (Spain, Italy, Eastern Europe, Americas), the launch of city trips and tours products, and continued hotel and cruise capacity additions-directly addresses rising demand from emerging middle classes and the aging population prioritizing travel experiences. This is set to drive long-term revenue growth.
  
• Adoption of sustainable travel initiatives (e.g., hydrogen-powered ground equipment, adoption of e-LNG for cruises) and a clear business case for sustainability position TUI to capture environmentally conscious travelers and comply with tightening regulations. This will support resilient demand and protect margins from potential regulatory shocks.
  
• The ongoing transformation of the Markets + Airline segment, including a shift toward differentiated products and dynamic packaging, and restructuring underperforming regions (Belgium, Holland), is not yet fully reflected in current financials. Management anticipates these changes, along with productivity gains from airline integration and product innovation, will drive material improvement in segment margins and overall group EBIT in the next 1-2 years.

TUI Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming TUI's revenue will grow by 2.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 2.7% today to 3.4% in 3 years time.
• Analysts expect earnings to reach €877.8 million (and earnings per share of €1.62) by about September 2028, up from €663.0 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as €715.4 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 8.1x on those 2028 earnings, up from 6.3x today. This future PE is lower than the current PE for the GB Hospitality industry at 22.4x.
• Analysts expect the number of shares outstanding to grow by 0.23% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.84%, as per the Simply Wall St company report.

TUI Future Earnings Per Share Growth

Risks

• TUI's traditional packaged holiday and airline business faces increasing competition from low-cost carriers and online travel agents (OTAs), which erodes pricing power and places sustained downward pressure on the margins and market share of its core Markets + Airline division-evident in current margin softness and challenged EBIT growth in this segment.
  
• There are persistent risks related to demographic and consumer preference shifts, notably in Germany and Western Europe, where aging populations, weaker economic sentiment, and risk aversion could lead to declining travel demand and shorter vacation periods, negatively impacting revenue growth and occupancy rates over the long term.
  
• TUI's high exposure to geopolitical risk-exemplified by the Middle East conflict and Europe's heatwaves-can create booking volatility, particularly in key markets that contribute significantly to revenue, and such vulnerability to shocks can undermine long-term revenue predictability and stability.
  
• The company remains in a phase of significant transformation, incurring substantial costs to restructure Markets + Airline and shift toward more differentiated and dynamic products; as admitted by management, the financial benefits are not yet materialized while transformation costs continue to be a near-term headwind for EBIT and net margins.
  
• Sustainability and regulatory risks-such as the need for continued investment to decarbonize aviation and cruise operations and the potential for increased carbon taxation-may raise operating costs and reduce demand for air travel, with medium
• to long-term effects on TUI's cost base, competitiveness, and margins.

Valuation

• The analysts have a consensus price target of €10.807 for TUI based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €16.0, and the most bearish reporting a price target of just €7.3.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €26.0 billion, earnings will come to €877.8 million, and it would be trading on a PE ratio of 8.1x, assuming you use a discount rate of 8.8%.
• Given the current share price of €8.24, the analyst price target of €10.81 is 23.7% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.