TUI AG

Hello, everyone, and thank you for joining the TUI Group FY25 nine-month results call. My name is Claire, and I will be coordinating your call today. During the presentation, you can register a question by pressing star followed by one on your telephone keypad. If you change your mind, please press star followed by two on your telephone keypad. I will now hand over to TUI to begin. Please go ahead.

Thank you, Claire. Good morning, ladies and gentlemen. A very warm welcome to our third quarter results presentation from the TUI campus in a very hot and sunny Hanover. My name is Nicola and I'm group director in West Relations. I'm joined today by our CEO, Sebastian Ebel, and our CFO, Matthias Kiepp. We are pleased to present a good set of numbers, with Q3 delivering the best-ever result. No doubt you will have seen our ad hoc statement yesterday evening, which highlighted that on this basis we are raising our full year 25 underlying EBIT guidance. Following the presentation in a moment, we will be available for Q&A. And with that, I have the pleasure to hand over to Sebastian and Matthias. Here, Sebastian, to you first.

Thank you, Nicola, for the nice introduction. you see us not you see us you hear us in a good good mood there are not many good news today around in the world i think what we can show and deliver our good news and that keeps us very positive you are familiar with our agenda it's the same like before i will talk about operational and strategic highlights matthias will go into the numbers in detail we also will give you a trading and an outlook and a short summary. We have seen a very strong nine month revenue up by 8%, EBIT up 115 million, 150 million, 150 million at current currency, driven by record hotels and cruise results. How do we do that? We have had an even intensified look into the integration benefits. The streaming into our own hotels, our own cruises into the amusement products have even been optimized, and that drives superior results and growth, and we are really proud of that. Market and airline transformation is accelerating. very important because we still have significant room for profit improvements. And we are, and we have presented that before, more customers, more products to deliver growth. And by rolling out now our standardized global platforms, IT platforms, we are able to significantly reduce costs. We will go into the details in December. this year, so in three months to give you more guidance on what we do there. And on this basis of the great nine month, we are not only well on track for the full year, but we were also able to increase the guidance for the full year to 9 to 11% at current currency. If you look into the third quarter, into the details, significant improvement, 90 million, almost 100 million at current currencies, driven by highly experienced record and market airlines benefit of the Easter shift, which we had expected when we presented the Q2 numbers. Revenue up by 7%. and EBIT up to 321 million, the highest Q3 result ever, I can remember, and the team looked into it to verify it for the whole two weeks. When we look into Holiday Experience, the Q4 trading momentum is there. It stays. So by the vertical integration benefits, by the strong demand, we are able to have higher rates for our unique and differentiated products. The focus on unique and differentiated products makes it different also for the market and airline, and the market and airlines helps a lot through the integration effects to get the outstanding occupancy and rates. We look into the market and airlines. Summer bookings are minus 2% ASP, holding up 3% in a very competitive market. market with a later booking trend, heat waves and especially the Middle East conflict had some impact. If we look into the winter season, we have seen a very positive start. It's still early, but a good start is a good start. And by having said that, as said, we were able to increase the guidance. If we go into the details, Q3 Hotels and resorts were on the same level as Q3 of 24. This is taking into effect a negative effect. We had a one-time effect on the re-evaluation effect. We also had the effect of the Turkish Lira. Operational result has been significantly better. But, again, this is a strong comparative we had last year, and we keep that. On the cruise side, a significant improvement. The good thing is it's not only because it increases capacity increase. We haven't had the negative effect of the Suez Channel rerouting last year, and we do see that we have a very good – development also when it comes to rate. You could argue on hotel side the occupancy has further increased daily rate 3%. You could argue why is the occupancy and also when we look into the fourth quarter is stable because the cruise ships are fully booked. So the future task will be to optimize further the rate. Also good development with amusement. um especially we put a lot of effort to direct our 2e customers into our own produced experience through the built data base we have with all customers that is doing very well and that has led also to a significant increase in the ninth month of the two amusement results so holiday experience doing extremely well benefiting from global distribution that's i should have mentioned as well We now get more and more hotels also from other source to resource markets. We went into Portugal. We went into Spain, by the way. We will go in the autumn into Italy as a new source market. We went into Eastern Europe, but also into the Americas, South America, Middle America, and that helped us to keep the high demand. load factor or even improve the load factor. So it's an important effect of the vertical integration. If we look into market and airlines, we have seen the expected increase due to the easter shift in Q3, but we are still behind the nine-month number. Departed tax 2% up. What is really important for us is the increase in the dynamic package share. This is a very important source of growth in the future, and we have now built a dynamic connection to airline content, to hotel content, And that's why we also expect not only here a significant, we see not only here a significant increase, but we hopefully can accelerate that in the future. App sales also very important for us. 40% increase now to 10.5 percentage points. That's a great development. And clearly what is even better is that when we want to go to the 50%, there's a lot of what we can achieve by improving our app. and load factor on the same good level as we had before. If we look into the regions, UK having seen the biggest improvement, Germany a small improvement, and Western region a negative. Western region consists of three countries, France, Belgium, Holland. France is doing well, but we have this for two years. Before that, it was our main concern. Problem child, Holland and Belgium needs a lot of focus and we are turning around the business. We're changing the business model to a more dynamic model, a more direct sales model. We actually had the same situation in Scandinavia, Finland a year ago. We changed, turned around the Nordic countries, and this is what we will achieve. Also invest on region next year. So it gives us a solid base of further improvement as well. Some highlights like we always do. We said for market and airlines, more products, more customers. More products there is a very important product which we are now rolling out. in Europe, starting with all the TUI markets, starting with Germany, this is our Tuis products. The tourist market is a big, big market in Europe, but everywhere in the world. And the new tool consists, which is available for online, but also for retail, consists of pre-produced round trips, at the moment 200, but that will increase to several thousands closely. But what we have seen, there is a big demand of personalized products, agendas from the customer. So where he books two days Los Angeles, one day San Francisco, one day in Yosemite Park, and the tool makes sure that the flight fits to the hotel, the time schedule fits of the excursions, fits to the location where you are. So it's a great tool. The first signs are very promising. It's a huge untapped market. I talked about the app, a lot of small and big improvements there. We bring AI into the search, not only search algorithm, but also the customer can do full-text search. We did start that in the UK, and every month there is new functionality in the app, location-based service and so on. On the hotel, on the experience side, last time we presented what we are doing in Asia. We are now also expanding in Africa, which is, by the way, a very attractive market, and the TUI brand is very well received there. Now new hotels in Gambia, quote, unquote. Thank you. I was never so good in French. And also in South Africa, there are more hotels coming. As you know, we successfully launched in March the Mein Schiff Relax, which was now in full operation in the third quarter. In the third quarter, two-third quarter of 26, the mineshaft flows will come into the market, and that will also be a significant base of improvement. Sustainability, this is not a fashion for us. It's a sound bill case for us. It's of course good for the climate, it's important for the customer, but it's also a commercial business case in itself. Here we have some examples for what we do, turnarounds on airports. We had the first UK airport, was it Birmingham, where we use hydrogen powered ground support equipment. What is really not on the list here, what makes us proud, we had the first trip, a travel with Mineshaft Relax completely with ELNG, so carbon-free LNG, which was made out of, which is made out of biogas coming price-wise closer to the carbon LNG. And this is something where we always dreamt of, and we have brought this into reality. Matthias, the hot numbers.

Thank you very much, Sebastian, and good morning also from my side. Let me on the next pages briefly go through the numbers. The bridge is three and nine months and then P&L, cash flow and balance sheet. And as Sebastian just presented, we are very pleased naturally with this quarter. Revenue increased by 7%. This is also because of the positive shift of Easter into this quarter. And then an underlying EBIT nine months at constant currency of $1.99 and $1.65 at actual rates. This results in this $150 million increase year-to-date at constant currency. And as a result, we are very pleased that we can raise our guidance to a range of 9% to 11%. Just mathematically, this range also allows us to even have a softer Q4 and still result in a positive area with this range. Net debt has further improved. That's a result of our financial discipline and interest. We target our further improvement of leverage for the full year and can confirm that we are on track to do so. We also, and that's a very good reference, we think is issued a promissory note of around 250 million at a very favorable coupon. I think this shows also the trust and the terms that we are now achieving in the credit market that really helps us to not only refinance the business, but to optimize our financing structure. Now, the three months, which Sebastian just has explained, I think on this one page you just very clearly see the success of Cruise, which goes beyond to just the addition of the new tonnage into the Cruises and the not having the Swiss effect this year. It's also an improvement in the underlying operation performance of both units. Now, cumulative nine-month numbers, as I just said, 165 million for the nine months at actual rates. If we would apply prior year rates, that would be at 200 million, so 35 million is higher. This is in particular coming from the volatility in the pound, for example, and you may also have just seen the volatility in the year that we thought Earlier this year, this will maybe reverse because we have the stronger summer months at current rates. I don't expect that we'll have a significant benefit in Q4. On the picture in terms of where is it coming from, strong performance in hotels and resorts. Sebastian mentioned also the benefits of vertical integration. That's really encouraging. Cruises, that's something we've seen in Q3. We have seen already in Q1. This is really a strong market, and so the localization of both units is a very strong product. proposition amusement in line with expectation and strongly benefiting from the markets and airlines clients. And then the markets and airlines accumulated position of minus 35. And that's why we also think going forward in Q4, this will be for the full year challenging to turn around. And this is also reflected in our guidance going forward. Now, for the P&L cash flow and balance sheet, if you look at the details, what needs to be highlighted, this is in particular adjustments, net interest and the EPS. Adjustments, you see a positive number. This quarter we had some disposals and they resulted in positive one-offs. We expect that this positive impact of around 20 million will be carried forward. and therefore we can, for the adjustments, update our guidance to the lower end of our range. Interest is very favorable again. There's a one-off included because of the valuation of our bond, but the other half of the improvement of around 20 million and a quarter is various elements, lease improvement, interest on derivative improved, and we expect that these improvements will hold for the full year and if you then again just through the math you will come to a situation and we will expect a similar improvement in Q4 and on that basis we expect that we will actually be slightly below the range that we already used last time for interest. And all of this results in a very strong increase in earnings per shares. by 26 cents in the quarter, 10 cents last year and 36 cents this year. For the nine months and three months on cash flow, cash flow is in line with our expectations. Let me highlight a couple of elements. First, working capital is a bit softer in the quarter than last year, but fully in line. Sebastian mentioned it. We also go for margin rather than volume. the other cash there were a couple of one-offs included last year as well that we don't see this year again and there's also always the movement in maintenance reserves when we hand back aircraft that's an impact that we will also see in the in future years that whenever the boeing portfolio switches around and we get new aircraft that we then see the outro for the old aircraft on the maintenance um interest the same positive effect that we've seen on the P&L side and resulting also in improvement of our guidance so we expect that we can go below the range again we lowered that range in H1 as well and we think we can get below this for the full year investments in line with our expectations you see an increase also when you see look at the nine months it's probably around 100 million more and just be reminded that we saw substantial divestments proceeds last year and in line with h1 communication we therefore expect that we're at the upper end the rest of the cash flow is aligned with our expectations and as a result we see that netted has improved by two 100 million versus prior year, there are two effects. One is there's a bit of FX as well, which is supporting us on the lease portfolio dollar against the Euro is a bit weaker versus last balance sheet date. The second impact is that against July, against the comparison in June of last year in July, we issued the convertible and the equity component is accounted here in the comparison. In all, the development year since the 1st of October is reflecting our strategy to keep net debt under control, increase our earnings, and thereby reduce our leverage step by step. Just before I head back to Sebastian on bookings and just one final comment on the promissory notes that we could issue. As I said, I'm very pleased with the terms and is very pleased with the support that we received from the banks that handled this transaction. The rationale, again, this is not a refinancing. It's really about optimizing our financing structure. And it's cheaper than what we have. But even more important, it gives us more flexibility for the aircraft that we intend to refinance with these proceeds. not prolong lease payments, lease arrangements for these aircraft, but use the proceeds from this Schullschein, so no impact on our debt position because we're just replacing it, but it will give us much more flexibility in our aircraft ownership, and that's something which is a positive for the operations of our airline. And with that, I would like to end and hold over back to you, Sebastian, on trading and outlook.

Thank you, Matthias. If we look into the fourth quarter, and I want to start with holiday experiences, we do see that our occupancy we can further optimize by three percentage points, and we are able to increase the daily rate by 6%. Two main effects, global distribution we have built up and the steering of our markets into our own assets. This brings us into this great situation. And by the way, the net promoter score for our own assets are outstandingly positive. On cruise side, another increase of capacity. but only a small increase of occupancy. Why is it only 1%? Because the ships are full. They are above 100%. We have just seen an absolute record with additional beds for children, so we are well above 100%. This is amazing, and this is an outstanding result, gives us future success. possibilities for price optimization. And despite this strong increase, a great result. By the way, when we look forward into, because of one ship more next summer, we do see that we're even ahead of bookings of this year. If we look at two amusement, we expect high single digit growth, which is an outstanding result because we are able to increase further the uptake rate of TUI customers. Why? Because with a single database we have built and personalized offer management, we are able to bring the right product at the right time to the customer and amusement is benefiting from that very much. By the way, we are now also starting to offer amusement customers, so amusement customers which they got in cities, which they got in the destination, but not through TUI, we have started to offer TUI products to them as well. So overall, a great development and vertical integration is paying off with all the tools we have built. If we look into market and airlines, bookings are at minus two, UK plus one, and we do see a momentum through all the measures we have taken in the UK. 90% sold. Germany going backwards by 5%. The two operator product minus 4%. Why is that the case? We have seen a significant impact not only of the heat wave, but also from the tension in the middle. Eastern has Long-haul destinations in the Middle East has been a significant part of the TUI business. We have seen some impact there. And we have very much focused on margin, less on volume. Therefore, the ASP is plus. And the program sold almost 90% today. So that's why we are very, and summer includes October. So we are very confident that we can achieve what we have. Looking into winter, we had a very positive start. It's still early, but it's important. We expect a good winter because of the shoulder seasons getting more important. because customers who may have not traveled in summer will go in October and November. We also are getting – that's part of the transformation. We are bringing more products to it, like CityTrips. TUI has never been strong in CityTrips. Now we have started to offer them. So it's a little bit the reverse way how EasyJet is doing it, who went from CityTrips into Sun and Beach. We go from Sun and Beach into Cities. It's a complete untapped area for customers. for TUI and as we can now dynamic package the Ryanair deal. helps us a lot. We are offering attractive products in the city destination area, and that supports especially autumn, but also the early season in summer. So that's what we understand with more products dynamically produced to retource component products. And for We talked a lot about this, and we now see that all these things come into a place, and that's why we are positive, not only, of course, for winter, but for the future. Hedge position is also something I would like to reflect on. During COVID and the first years after, we had still limitations. Now the limitations with the sound balance sheet and the benefits improvements we have seen on the balance sheet and the trust of the banks, we are back now to a normal balance. a situation we can do what we want to do. We have full flexibility and we are happy that the next winter is hedged for good rates. We have, especially on the fuel side, good hedging for summer and we have even started to hedge for winter for 26, 27, so we are back to normal. So the outlook we think is very positive. and that helps us to increase the guidance on constant currency from 9 to 11. And what is maybe even more important, and Matthias will go into more detail, details on the guidance is that we can also confirm the longer term offer for the coming years because we are very convinced that with all the improvement in Markland Airlines we will see a significant better and catch up mode in the coming years and maybe you do some more

Thank you, Sebastian. Indeed, this is more to summarize what we've presented so far. So, the segment view compared to our position when we set up this guidance in December, Hotels and resorts, we had a slight growth in our expectations given the very strong results and performance. We have upgraded that to strong growth. Same to cruises. As discussed, this is really a strong market and the performance is beyond what we see from just adding the additional capacity. And to this effect, amusement remains unchanged. The translation of clients into earnings is continuing to work very well. And then in markets and airlines, unfortunately, we need to downgrade from our modern growth expectations, which were Triggered by the expectations, particularly on the fourth quarter, we now expect this segment to be below what we've seen in full year 2024. But as a result, with a very strong performance in our product businesses, as we just presented the underlying EBIT for the group, is expected to increase higher than we had and by 9% to 11% at constant currency rates. And the details in the P&L and cash flow, again, to summarize these adjustments, we expect now at lower end of this range of 40 to 60 net interest. We've lowered the range in H1 and we expect both for P&L and for cash to be slightly below that range. Net investment, we confirmed that we at the upper end of this and there is this additional 50 million prepayment for the Morella refeeding, which has been triggered in the fourth quarter. Leasing asset financing remains stable and net debt in line with what we've just seen for Q3. We expect a slight improvement for the full year. And with that, I would hand back Sebastian for final words and midterm outlook.

Thank you. Final words for today, hopefully. As said, the guidance this year, but we want to confirm our midterm ambition. We foresee significant improvement in market and airlines to the measures we have proposed. Take shoulder month, dynamic packaging. I had forgotten one important thing, more differentiated product, because today we have 25% differentiated product with great margins. The commodity product is under pressure, and if we move in the next years to 50% differentiated product, we will see a significant improvement there as well. And differentiation is not good for the sake of differentiation. It's because the NPS, the net promoter score, what we do see, is well above whatever normal products mean. So this is an important thing for us as well. and we do that through optimizing and putting a lot of effort into the vertical integration to drive scale and profitability. We have now the tools, the database, so that we can do personalized offers, and we have, as I said, the platforms, which we are rolling out, or we want to roll out, We have rolled out in some markets. We will roll them out to all markets, and that gives us a significantly lower cost base for the future. We will see that in next year, the first big effects, and we will give more details in December. The transformation, as I said, very important, a lot of effort. and great progress, which is not yet reflected in this year's numbers, but we will see that very much. And, of course, one big effect is the tournament in Benin, Berlin, and the Netherlands. On the holiday experience side, we have a lot of opportunities to invest. We are limited in the capabilities we have, and that helps us to really focus on the best opportunities out of good investment that was also in the past the trigger point for outstanding returns. What we even do more is that we focus on the integrations to build clusters, which means that we have two or three clusters which we're just preparing. It's about flying to a cluster. It's building and having great hotel content in the clusters and have amusement activities on the ground there as well. So clear focus on the best returns we can achieve that. And that will leave us, brings us to further improvements on the cash flow we still have to do something there and we do know that which will strengthen the balance sheet and this knowing what we are doing independent if we have headwind or tailwind would be great at one stage to have tailwind again but with what we do we get even more resilient to view political change, to demand changes, and we can confirm our ambition to grow further the underlying EBIT by 7% to 10% in the coming years. It's a tough program, and we have made, especially when I look what we presented in Madrid, when was it, three months ago, four months ago? Seems like it was half a year ago. We have made significant progress in implementing what we had promised to implement, and now is the right time to start to earn the commercial benefits next year and the years after.

Thank you, Sebastian. Claire, we are now ready for Q&A.

Thank you. To ask a question, please press star followed by one on your telephone keypad now. If you change your mind, please press star followed by two. When preparing to ask your question, please ensure your device is unmuted locally. We have our first question from Jamie Rollo from Morgan Stanley. Jamie, your line is now open. Please go ahead.

Thanks. Good morning, everyone. I've got a few questions on markets and airline and then one on free cash flow. So just on markets and airline, the margins look like they've dropped only 1% this year. It would be helpful for us to understand how much of that pressure is the demand environment, you know, whether that's the consumer, the weather, the Middle East. How much of it is the competitive environment, basically insufficient ASPs, and how much of it is the higher cost of the transformation? And is there a risk that your margins in 2026 in markets and airline will drop further? Secondly, on the strategy in that division, you sound really confident it's working. As you said, we can't see any evidence yet. Is there anything you are disappointed about? Or are you going to be making any changes? And why are you so confident it is working? And then finally on cash, the mix of profit is moving even more towards the joint ventures. So what does that mean in terms of your free cash flow conversion and the eventual possible payout to your shareholders at the end of the year? Thank you.

Thank you. I start with the disappointment. If you look in detail what we presented, the one thing where I'm disappointed was the development in Belgium and Holland. and we have addressed that like we did it in Nordic and there we have seen the change and therefore we will see there the change and that will be also a significant part of the incremental profit for the coming years. If you ask about the margin, yes, there are costs of transformation in it quite significantly. If you look into the margin profile, you see that the traditional wholesale package is under pressure. By the way, wherever we act as a non-differentiated OTA, that's where the pressure is. If you look at differentiated products, so 25%, we have significantly higher margin, not only on the hotel side, if I would add that, but also for market-only products. And therefore to further increase, we put a lot of effort to increase the differentiated, a product set as at the target one day 50% there we will benefit. So important non-diff change to differentiate a product. It can be hard diff, it can be soft diff, and that will have a significant. Second thing is when it is non-diff, it is important that it's produced dynamically. The old model is not bringing the benefit as it has been, and therefore it's so important that we increase the number of dynamic packaged product. Thirdly, new products we bring into the market. The commercialization of the airline, there we will start in next year. We will see a slightly changed route network. We have some optimization on more seat only. So it's a lot of activities which will make it different. And the new product asset tours city trips and so on. So one disappointment addressed and we will change that. It gives us a huge big upside and the change in the traditional business into the modern world with a lot of differentiated product. And maybe I should add the more despite that we support Rita, as much as we can do. One of the biggest thing is to get the AI systems implemented into the distribution, which means linked to social media, means into the chat GPTs, the proxies, and so on. Would you like to do the third question, Matthias?

Yes. So on CatFlow and capital I think as we point to this from my side, I think one is the capital return strategy needs to be based and will be based on robustness of the business overall. I think we can confirm that the change in earnings mix has not altered any of our internal discussion and roadmap. And of course, naturally, at the third point, we are working on the improvement of profitability and cash flow of all our businesses.

Thanks. Can I just come back on a couple of things you said, Sebastian? Could you please, if possible, quantify that Belgium-Netherlands hit? And also, you didn't answer the question about margins in 2026 in markets. Now, we're not asking for a forecast, but do you think they've bottomed or it could be a bit more of a U-shape before we get to the 3%?

I expect a significant improvement for next year when it comes to margin. On the Belgian holiday, Belgian-Netherland things, you see the losses, and this is a business which should be structurally significantly positive.

Thank you.

Thank you. Our next question comes from Richard Clark from Bernstein. Richard, your line is now open.

Hi, good morning. Thanks for taking my question. I guess if we go back to Q2, you were quite optimistic that the slight step down in bookings you'd seen was due to a later booking window, and you were calling out the improvements you'd seen since Labor Day, that print. So just a little bit more color on what's happened in the last couple of months that that trend didn't hold. Is that all down to heat wave and Middle East? And in particular, maybe the second question is, Just a bit of color over the last 12 months as to what's particularly happened in Germany. I think after FDI came out, you know, we kind of assumed there was a vacuum there, but TUI at least was slightly filled. Who has stepped into that vacuum? And has that actually sort of raised the competitive pressure? Is the replacement more competitive against you than FDI? And then the third question is just around the dividend. And we haven't mentioned it today, but I guess we're expecting a dividend policy at your next print. Does dividend policy mean you're going to declare a dividend, or does it mean you're going to set out a policy and declare a dividend at the end of 2026?

First, I would like to reiterate we have a great result in 2020. and holiday experiences, and this is the result of the virtual integration, the customers of the markets brought into the holiday experience assets. Second, we see a good momentum in the UK, more to come, and yes, Germany has been a weaker market, If you ask for the reason, there are external one-time effects like the Middle East situation, also less trouble to the S. And if you ask about FTI, as I said, the differentiated product bring the volume. We could have quite more customers we would have liked to do it, but as we wanted to protect margin, the market environment was not with the products we had to get to these customers. So the market has been weaker and the heatwave also played a role. definitely. And FDI, it was a decision in this market development situation to focus on the differentiated product. We will also bring more products into the market with a different cost base to also be be competitive with there. But it's, again, for us, margin protection is very important. So it's more that we go into the area of differentiated product. You may recall that FDI was heavily loss-making, so not because it was a bad company or they had a lean cost structure. It was just the market segment they had been in, and this market segment has not improved yet, and therefore it was not our main focus today.

Thank you. And on the specification of what dividend policy means in December, I would say please understand that we cannot really go beyond the communication that we have set. I need to ask for your understanding that we cannot further comment on this. The reason is we've been quite transparent with our internal discussions and discussions that we are having with our board. This will be in Q4 calendar year, and we cannot therefore go beyond what we've presented externally yet. It's on our agenda.

Maybe just one quick clarification. Why has Germany suffered more from the heat wave in the Middle East than the UK has? What is the differentiation there?

Why has Germany more suffered? I would say that the economical climate in Germany is less good as it is in the UK. Second, The UK is more orientated to the Caribbean than Germany. We have a significant business to the east. By the way, it's now coming back. And that's why I said with heatwaves, we probably have to expect year by year. These geopolitical incidents, they impact us for eight weeks. Unfortunately, we're the wrong eight weeks, but it's over. And what we do see now that this market is coming back. And yes, so these are one times effect. And of course what you also see, maybe in terms of more risk, if you look at bookings to the North Sea or to the Baltic Sea, German North Sea, German Baltic Sea, they are even down 25% if you look at the official data. So German have been more hesitating. So in our segment, we are actually doing very well compared to others. And by enlarging the product portfolio and so on and so on, we will now turn it around again. Important for us that the relativeness to others is good. And with the new products and the new production method, despite these incidents, when they happen, we will win. And we will prove that.

Thank you. Our next question now comes from Christian Nerecu from UBS. Your line is now open.

Thank you very much. Could I please start with the working capital? Correct me if I'm wrong, but I think your revenues in markets and airlines in the first nine months are 800 million higher year over year. You usually have a negative working capital, so this should mean some cash inflow from working capital better than last year. But I believe the contrary, I think the working capital cash inflow is 100 million less than you had last year. Could I just double check the moving parts and what's happening there? I think the second one on markets and airlines, coming a bit back to the cost savings and transformation costs and benefits, I think you mentioned you'll provide us more details in December, but just ballpark for us to understand it. Is this year the transformation program, is it a net headwind to the EBIT or the benefits are higher than the transformation cost? Could you give us a bit and try to understand if this year there's a $5,100 million benefit from the transformation or it's a headwind or anything like that? And maybe the third one, if I may, just coming back to your guidance for a modest improvement in the net debt, If I look on slide 33, I think that the segments which may be a bit more difficult at least for me to forecast is this movement in the lease and other repayments and other non-cash additions to the lease. Could you talk a little bit about that? So, leaving aside the free cash regeneration, what is the impact on the net debt from all these movements in the leases and additions and other movements? I think you mentioned in Q3 you had a benefit from the effect on the dollar-denominated leases. I think that itself helps you by $200 million. So could you help us for the full year roughly how we should think at this moving part? Thank you.

Yes, maybe. Good morning, Christian. I can start with working capital. If you just look at Q3, you have a 50 million softness in working capital. Again, this is something where I'm not kind of. I'm too excited to be honest. I mean, there's always what is exactly the date and how does it compares that plays a role in this if you look at the order of magnitude. If you compare revenues to working capital, there's also the advance bookings which are included. been working capital. And that's, if you just look at the trading statistics, which are a bit down, that's also reflected in this position. But in the end, that's something then over the full summer and over the full season, which will then go out. And I think, again, which is even more important is how is the winter for us, because in the summer we are anywhere on the surplus cash with regard to seasonality. On the third point, the debt modest improvement, yes, indeed, if you just look at what is the earnings and cash flow forecast operationally for the business implicitly, then you would be at a kind of good improvement on the debt. At the same time, we had other deliverings, Boeing deliver in the winter and that has increased because they move directly on balance sheet or lease position and that is netting some of this positive effect off. That's why we have a slight improvement only for the full year. On the transformation cost effect, on results, one is, of course, we will always see operational improvements and we're working. I mean, this is a step-by-step project. This is not like a turnkey project where in a certain point of months you will see a very different business. This is stepwise. At the same time, when you look at our adjustments, we factor in kind of costs that would be involved in our fourth quarter in terms of realize some of these benefits.

And the program, more details in December, is a significant benefit we want to achieve. And I think it's important for us to really have the time to give you a full overview about that. And, of course, the net costs were still bigger than the positive effect. Thank you very much.

Can I add one short? I'm sorry, go ahead.

And the transformation then is one step to bring us to the 3%. Thank you.

Thank you very much. Can I add one short follow-up on the working capital? So, Matthias, based on your answer, it suggested that at the end of the year, the working capital should be pretty much aligned with the usual relationship. So this means that the usual 600 million cash inflow you're seeing from working capital in Q4, that's more or less what you're counting on for this year too. And maybe secondly, looking at your balance sheet that the touristic payments received, I think this has increased year over year by something like 3%, while your revenues have increased by 7%. Just double-checking this increased competition in the market, that does make Does that materialize also by offering better payment terms for your customers, lower deposits, or collecting money closer to the departure date? Is this something you're seeing at an industry level or not really?

No, we're not seeing this. And these are two questions, but anyway. But the prepayment schedule and how they're coming in, the advance payments, this is fully in line with last year. I mean, this working capital would see the cash flow is also the delta against prior year. And that's where the trading position of the current year is reflected. And what I said is over the full season, I expect a fully normal working capital inflow and position. And at the same time, of course, if we steer the business more for margin than volume, you will see an impact on the net development of working capital. But this is something I'm more relaxed about because, in the end, to give away product in order to generate working capital would not be a good thing, to be honest. Thank you very much.

Thank you. Our next question comes from Jaina Mistry from Jefferies. Your line is now open. Please go ahead.

Hi. Thanks for taking my questions. I've got three. The first one is on your hotels and resorts segment. I wondered if you could quantify your pipeline of hotel rooms today. and how that compares historically, so what the number would have been in 2019. My second question is around your EBIC guidance. I think you might have mentioned it earlier, but could you just go into more detail around why your guidance only implies flat EBIC growth in Q4? And then lastly, my third question, I just wondered if you could give a bit more detail on your view on the health of the UK consumer. Bookings are flat in the winter in the UK so far. It appears that you'd be losing share given Jet 2 and EasyJet holidays are putting on much more capacity. Can you talk about the competitive dynamics and your view on whether travel in the UK is slowing? Thank you.

Yes, thank you. I can maybe start with the EBIT guidance. Indeed, mathematically, the guidance, as it's now set, allows us to be softer in Q4 versus prior year or flat. I think if you just look at our segment expectations, then indeed the most important quarter for markets and airlines business, we have reduced our forecast for the full year and at the same time the expectation for the product business which is more evenly distributed amongst the quarter has increased. On the hotel pipeline rooms, I mean, the capacity have increased. At the same time, also the number of management contracts have increased. I would suggest that the IR team comes back to you with details on that. And then maybe, Sebastian, some words on the health of the UK consumer.

I mean, I'm... surprised how stable the UK market is. And the interesting question is how do you grow? Do you grow with significant increased risk capacity or are you growing with using the risk capacity? Yes, we have our airline. We will have an even better route network thanks to the transformation, but the growth will come through using third-party network, to use the dynamic packaging. And that leads in a way that our passenger also counts, if it's a Ryanair flight, at the Ryanair number. Therefore, but it's initiated by us. We have stopped the losing of market share. We will gain market share by going more and more into the dynamic space. And that's why we are so confident with what we do see as one of the main markets where we see the benefits of the transformation first.

Thank you very much.

Thank you. Our next question comes from Andre Julliard from Dushbank. Your line is now open. Please go ahead.

Good morning. Most of my questions were already answered, but just follow up on the airlines and the cruise lines. Could you give us some more color about your intentions about financing? Do you plan to continue to end some lease contracts for the airlines and transform them into a full ownership? And have you made any progress on the financing of the two new ships for Mar-a-Lago? Thank you.

Yes, good morning, Andre. Thank you. On the airline financing, I would say generally our strategy is to have more ownership, and that's purely, I would say, one of the biggest reasons is operationally, the flexibility we currently don't have. We profit a lot from the lease market, and at the same time, we want to continue to use opportunities that we have, and that's particularly for companies leases that run out, I would expect that first deliveries we would always naturally put into lease structure so far for the coming time because of the benefits that we see there on the financing market. And the same applies because you asked for both on the cruise side. financing offers for new ships, that's something which is very favorable, and that's something we would always go for. And then once the ships are used, you can see how you see a leverage. On the Maryland new ship financing, this is all going well to plan, and we are very pleased with the developments on the financing side there. Okay, thanks. Thank you.

Thank you. Our next question comes from from . Your line is now open. Please go ahead.

Thanks very much, and good morning. Two questions from my side. Follow up on the airline business here. Is there an ideal share of owned airlines, or is that rather a moving target that you decide on, you know, the opportunities and whenever whatever is possible? And then secondly, on the bookings, Germany down 5% somewhere. What are you seeing in terms of a length of the vacations? Are people or other consumers in Germany specifically also cutting down on the length? Or is it just, in parentheses, just the number of bookings that is down? And maybe one additional one, so that makes three. How are you planning the winter period? I would assume no capacity increase because you want to grow with dynamic packaging, but maybe some words on how you're seeing the winter period coming along. Thank you very much.

Welcome. We have not really focused on airline. Part of the transformation is with huge benefits is to making out of one, two, three, four, five airlines, one airline. We had the model that the source market had an airline. We had some global synergies, but now, and we have the management team together, we are implementing one airline at the end with two AOCs, one for the UK, unfortunately needed, and one for Europe. So a lot of benefits to have one integrated airline. airline cost benefit, but also revenue airlines. We don't sell from the decimation. So if a Spanish customer wants to go to London or Frankfurt, he has to visit different sites and that's all changing. So a big change and that will increase efficiency. When you talk about capacity, there are two things easy to address. One is the dynamic packaging and that's the main focus. But we also have had a lot of efficiency not used efficiency gains. By building one airline we are able to without having more aircrafts, without having more pilots, we can increase the utilization significantly. This also will lead to better product and less cost. So this is a huge change. and with the price to win is high. And we have now the structure built. We have the management team. We have made a lot of decision. We will have a combined lead plan for the next summer. So a lot of great things we are looking forward to. And in a way it's the normal, it has been a big change for Dewey because of course it changed the OD. But if you look at the main airlines, no one would have run it as we have done it. And with the new management team, David Shelp and so on, we were able to address it. When you talk about German trading tents, I think A lot of things have been one-time effects, but also a kind of consumer sentiment, and therefore it's so important that we go into market segments where we haven't been in. The stay length has become, at least that's what I do see at the moment, slightly less long. which is, I mean, during COVID or after COVID, we saw an increase by one day. This is getting more normal than as it was before. And winter capacity change, I answered, there will be more capacity or limit more capacity through dynamic packaging. Again, it's not only airline capacity, it's also bed capacity. And second, in the system, we had a lot of opportunities to increase efficiency. And that's what we are doing. And again, not only on the airline side, but also while, as I said, we try to be having better offers or more offers, not better, more offers on the shoulder season to have hotels longer open until January in Greece and in Turkey, and that should also help us with the same cost structure to increase capacity. We are not planning to have X aircrafts more and so on. We have still huge potential in increasing efficiency.

Got it. Thank you very much.

Thank you. Our next question comes from Haram Puri from JP Morgan. Your line is now open. Please go ahead.

Hi. Good morning, everyone. Three quick questions from my end. The first one is on group EBIT sensitivity to top-line growth within markets and airlines. I'm wondering if we could share something on the drop-through here. Second one is, again, on the Q4 implied EBIT growth coming in slightly softer than previously expected. Sorry if I missed it, but just if you touch a bit on the phasing between Q3 and Q4 once again. And the last one is on your sort of evolution of German market share in the context of the minus 5% bookings that you communicated today.

Again, I mean, the biggest part of the profit of 2E is... as holiday experiences. And we get all the questions on Mark and Alan. Yes, we have room for improvement. The important thing is that we further improve the holiday experience business, and that's what we do very well. And therefore, the sensitivity you're probably asking a downward sensitivity is very limited or not existing in market in the airlines. Yes, there is a huge opportunity with the transformation and so on. So that's why we are so positive when it comes to the outlook into the outer years.

And to add on this, I mean, this is not really the business driven by margin. That's how they are also steered by our colleagues. And to give you an example, the Nordics, they have less capacity, so less revenues. They will do better results this year than last year. It's about where are you with your capacity, where is the market, and what is the right capacity in terms of risk profile and product profile. So, I think that's fine. I think the second question or third one was about phasing between Q3 and Q4. I think I can just repeat what I said before. So, if you look at our guidance target, we can achieve the new upgraded guidance for the group. with even a softer Q4, and on that basis we have defined our guidance targets.

And the market share question is an interesting one. Our market share in the tourist business is maybe 3%, but our initial market share should be 30%. On the city trips, it may be 5%, it should be 30%. If you look at the market share for five-star segment hotels, differentiated, we increased significantly the market share. What we didn't do is, in a soft market, increase the market share, which is very low in the two- or three-star undifferentiated product, because, as Matthias said, it's all about positive margin. It's not all about volume. Yes, the cost we will take out will make us also more competitive at the lower end, but we have to be very, very careful there because, especially in a soft market, and you see the example of FDI. As I said, it was a good company, but they were loss-making because they were in a segment where it's really difficult. High prepayments, undifferentiated product tour, to earn the money with. And therefore, in this market condition, we said we are very careful there because increased market share would have meant increased losses. That's why we focus very much on the four, five-star differentiated product market.

It makes sense. If it's possible to sort of, you know, give sort of a high-level understanding of the blended market share in this context, just trying to understand what the market is doing in terms of bookings versus minus 5%.

So in winter, we have gained significant market share. In summer, I would at least expect that the market share is stable.

Got it. Thank you so much.

Thank you. Our next question comes from Maneeba Kayani from Bank of America. Your line is now open. Please go ahead.

Good morning, and thanks for taking my question. First question, on cruises, so clearly strong performance this year, and I see your guidance upgrade on that specific segment. As we think about next year on cruises, can you talk about the building blocks for this business? and separately between JB and Mirela. What's your visibility for next year at this point? And then also on the cash flow side from cruises and the dividends, you clearly said it for this year, but also kind of thinking about it for next year. So that's my first question around just overall cruises into next year. And then secondly, just on FX, so your guidance is that constant currency, there was a 10 million headwind in the third quarter. What are the moving parts and effects for the fourth quarter as we model out and report it a bit?

Thank you. We have given you the ambition for the next years, which includes next year, which includes also that we are positive on the cruise. One thing is a fact that there is one more ship to come. And I also gave you an indication that the booking looking forward are promising. So that's why we are optimistic for the cruise sector. For 2E Cruises, one ship more, a big ship more, Morella. Very well booked, very stable operation, optimizing yield, also positive and the real guidance. And therefore, I should say about our ambition for the next year is not guidance, ambition for the next year. And that's the full guidance you will get in December, including the cost program. And I was told I should not talk about cost program. It's because it's the effect which we do it not as a cost program. It's the automatic effect that you have one sales system, one buying system, one airline system. And that leads to automatic cost saving and real significant cost savings.

Yes, thank you. And indeed, I mean, on FX, again, when we looked at the start of the year with the currencies that we had at that point in time, if you just look at the euro to pound relation, we would have seen losses translating at a rate and then the earnings in the summer coming back at the same rate. Now, in the summer, the Relation has changed, and now the euro is stronger, so we get less income in pounds when we translate that into euros. And I think that is something which we will also see in the fourth quarter. So if the currency stays where they are, this is not expected to be a big catch-up against where we are accumulated as of Q3.

Thank you.

Thank you.

Thank you. Our next question comes from Andrew Levenberg from Barclays. Your line is now open. Please go ahead.

Oh, hi there. And apologies if these questions have been answered if I had to join rather late. But I'd like to ask about the transaction of buying back the aircraft from the lessors. What motivated that and what are the economic benefits? If I look across at some of the other airlines, we've seen Norwegian and EasyJet do similar things and they've had really quite strong P&L benefits from these moves. Are you going to be seeing the same sort of P&L benefits from this transaction? And then my second question would relate to the change to your CapEx guidance, which is a bit more money for the Morella new boats that are being built. Does this give us any indication in how your funding strategy has evolved? For the two new boats, does it change whether there's a likelihood of Marilla staying on balance sheet or being moved off balance sheet? Thank you and apologies if that's already been asked.

Because as an expert, Matthias, you go into the details. Being 40 years in the business, I have learned you buy aircrafts when the euro is strong and you sell aircrafts when the dollar is strong. And that you can only do when you have ownership. It's a long way to go for us, but this is a fundamental part of the benefits of the P&L of other airlines. And, of course, there are other reasons. One, when do you want to keep it beside the currency? Sometimes it has to do with optimizing the maintenance cost, the difference between lease rates and purchase contracts. you have, so it's more than the currency. But if you do that well, you have an income stream, which you don't have if you rely on leases, and that's why in Ryanair it's 90 plus percent, or EasyJet has 70 percent, or 60 to 70 percent, and they all move into this direction. So again, this is part of the transformation of TUI, or as Matthias would say, optimization of financing.

Yes, and I think just to reconfirm this, this is triggered by the optimization of our financing portfolio, so we take the opportunity of leases that are up for renewal, that we kind of replace them with these proceeds, but also to be clear about this, we haven't factored any other benefits rather than the operational for the airline team and the kind of financing structure benefits that we have on balance sheet interest and cash flow into our models internally. And Marella, maybe you can take this up with the IR team as well, what is triggering the question because From my point of view, we haven't changed our view between H1 and Q3. In H1, we already announced this $50 million payment that would be triggered by signing of the contract with the shipyard. The contract has been signed, so the payment has been triggered, and the amount is the same.

Thank you.

Perfect. Thanks. Thank you. We currently have no further questions so I'll hand back to Sebastian for closing remarks.

Thank you. As said, we are building on our strength, and I would like really to like our team. In sometimes challenging market conditions, we are really working hard on a successful transformation, and the team is doing a great job. It's the same on the optimization of the investment policy we have on holiday experiences, and above all, it's the integration which helps us to have the best experience usage and the most profitable usage of our asset. And that's what you do see with the outstanding result in holiday experiences working extremely well to optimize the result. And that is not God-given. It's the result of very tough work, and I'm really grateful about, and I probably can talk also for Matthias, I'm really grateful of what the team is doing, because this degree of change, including being more product, having higher productivities, is outstanding, and I have not seen before in two weeks. So thank you for participating on this journey. Our set tweet of today is different to tweet of yesterday. It will be different to tweet tomorrow, and we are, as the result of the third quarter shows, on the right track. Thank you very much.