And they both are really good at it: as their brands are the no 1 travelling agencies in Germany, England and most countries in Northern Europe. This region also happens to have with the highest expenditures per capita in the world with regards to international travelling expenses.
It has been widely claimed in the end of 2012 and early 2013 that the financial crisis is over, and therefore the number of travelers increased tremendously last year. Thanks to an increase in travelling volume, the share prices of both companies literally exploded in the past year.
· TUI Travel’s share price in London increased by +64.53% over the past 12 months, which is a very strong growth, the stock clearly outperformed the market and the branch index. As you can see HERE
· Thomas Cook’s share price exploded as it was multiplied by nine over the past 12 monthsr, as you can see HERE.
First the costs of travelling will increase. Oil prices are likely to raise in the near future as a direct consequence of US military intervention in Syria. Syria is itself an oil-poor country, but it has a direct border to Irak and remains fairy close to many Oil Rich countries. So an escalation in the Syria conflict will affect negatively TUI Travel’s cost structure. They might decide to pass on these costs to their customers, but then the consequence will be plain simple: if they charge more for the same service they will have less customers. So either way TUI Travel will suffer from a spike in oil prices.
Second, several of European’s preferred exotic locations are in the Middle East, and those destinations are not as welcoming today as they used to be. Egypt welcomed roughly 11m tourists last year, out of whom 70% came from Central and Northern Europe, which are Thomas Cook Group and TUI TRAVEL’s core markets. And both travel operators are now cancelling their trips to Egypt this fall since riots broke out all over the country in mid-August leading to extremely violent confrontations between the army and the protesters (see article from Reuters HERE ). Moreover the US intervention in Syria raises questions to whether tourists will keep on flowing to their favourite destinationations in the Middle-East. Turkey is one of preferred destinations for people of Northern Europe with 32m tourists per year, at the same time it has a 560-mile border to Syria, it a member of NATO and therefore USAs nr 1 ally in the region and it’s government already made public statement that they want a larger military commitment from the US (see article from TIME magazine HERE). Does this sound like the place you’d want to take your 5-year old daughter to take her first swimming lesson? Probably not right now. Similar reactions will obviously impact the tourism in other popular destinations for westerners in the Middle East, such as the United Arab Emirates, Israel, Jordan, and Lebanon.
All in all the stock prices of TUI Travel and Thomas Cook Group are based on an assumption of a strong recovery of the tourist industry with cheap oil and stable political conditions in all the destinations of the tourists from Northern Europe, and ,wel,l this assumption is wrong! So we advise you to sell if you have shares in those stocks, or to buy put options to benefit from the stock decine that is bound to come.