The impact of the Iran war on tourism is depriving travel group TUI of profit growth this year. Without the fallout from the conflict, first-half results would have been even stronger. 'The icing has been taken off the cake,' TUI CEO Sebastian Ebel said on Wednesday. The outbreak of war in late February, and the subsequent blockade of the Strait of Hormuz, incurred costs for the repatriation of holidaymakers from the Middle East, including passengers from two TUI cruise ships stranded in Doha and Dubai for weeks. Consumer sentiment has soured significantly. Consequently, TUI reaffirmed the profit guidance it lowered in April. Instead of growth of up to 10 percent, the group now expects operating profit to reach a maximum of last year's level of 1.4 billion euros, or potentially decline to as low as 1.1 billion euros.

Despite the headwinds from the Iran war, the travel group managed to narrow its seasonal loss in the second quarter of the fiscal year ending September. From January to March, TUI improved its adjusted EBIT by 19 million euros, or approximately 9 percent, to a deficit of 188 million euros.

Consumers are hesitating and booking on shorter notice, TUI explained. Hotel and resort occupancy for the second half of the year is six percentage points below the previous year, though prices are 4 percent higher. In addition to the Iran war, demand was dampened by the after-effects of a hurricane in Jamaica late last year and waning interest from Americans for travel to Mexico following military strikes against drug cartels earlier this year. Booked revenue for the summer was 7 percent lower in early May compared to a year ago. Due to weaker demand, TUI reduced its externally sourced flight capacity by 4 to 5 percent. Cruises remain in demand despite the temporarily distressing situation for customers on the two ships in the Gulf.

NO KEROSENE SHORTAGE EXPECTED

Travel agencies and tour operators are becoming skeptical, as reflected in the declining business climate index for the sector from the Ifo Institute. Discussions regarding potential bottlenecks are causing uncertainty, explained Ifo industry expert Patrick Hoeppner. Due to the loss of oil supplies from the Gulf states, the market is currently missing 20 to 25 percent of its kerosene supply. The international airline association IATA warned that kerosene could become scarce starting in June, potentially forcing airlines to cancel flights.

TUI CEO Ebel called such warnings highly surprising. 'There is no indication of that at all.' Other supplier countries have filled the gap, and inventories are available. At the same time, oil demand has fallen due to higher prices. 'We assume that we will not have a bottleneck,' he emphasized.

TUI stated it has hedged against rising kerosene prices through forward transactions - covering 85 percent of its requirements for the summer and around 60 percent for the winter. Due to the war, holidaymakers are avoiding destinations in the Eastern Mediterranean such as Turkey, Cyprus, and Egypt. Meanwhile, sun destinations in the West - particularly Spain, Portugal, and Italy - are in high demand. Accordingly, the TUI CEO expects higher prices in the West and more affordable offers in the East.

(Report by Ilona Wissenbach, edited by Myria Mildenberger and Sabine Wollrab. For inquiries, please contact the editorial management at frankfurt.newsroom@thomsonreuters.com)