14 August 2008 

TUI Travel PLC
 Interim management statement and results for the 
third quarter and nine months ended 30 June 2008 (unaudited)

Key financials

Third quarter ended 30 June 2008

Nine months ended 30 June 2008

1 Comparative information is presented on a pro forma basis

2 Underlying operating profit / loss exclude separately disclosed items, amortisation of IFRS 3 intangibles, goodwill impairment and taxation of results of the Group's joint ventures and associates

Highlights

Peter Long, Chief Executive Officer of TUI Travel PLC, commented

''I am delighted with our trading for the Summer 2008 season across all our source markets. Our customers continue to place enormous value on their holidays and we are seeing no evidence to suggest that demand is slowing for any of our seasons on sale. In addition, we are currently recovering input cost inflation for all open seasons across our source markets.

While the evidence to date suggests that consumers view holiday spending as a high priority, we continue to prepare the business to deal with any consequences of the current economic climate. Accordingly, we are taking out capacity for the coming seasons where it makes sense to do so and retain significant flexibility to adjust supply further if demand trends change. The diversity of our portfolio of businesses provides further protection from risks arising from specific geographies or products. Next year will also see substantial merger synergy benefits delivered, based on work we have already completed.

For these reasons, and based on current trading, I am confident that the Board's expectations for the years ending 30 September 2008 and 30 September 2009 can be achieved."

Conference Call

A conference call for analysts will take place today at 9.00am (BST). The dial-in arrangements for the call are as follows:

A presentation to accompany the conference call will be made available via our corporate website at 8.00 am (BST). Please use the link below to access the slides:

http://www.tuitravelplc.com/tuitravel/investors/presentations/

A recording of the conference call will be available on:

Enquiries:

CURRENT TRADING AND OUTLOOK

Trading for all seasons on sale, especially in the UK, continues to be buoyant despite the challenging economic conditions. Our trading metrics are showing no evidence that consumers are trading down or curtailing their holiday plans. There has been no deterioration in cancellation rates, average durations or accommodation mix, although we have experienced a slight shift from long-haul to medium-haul destinations and have altered capacity accordingly by removing a B767 aircraft from the long-haul Summer 2009 programme.

The strength, flexibility and diversity of our business model gives us confidence that, despite significantly increased fuel costs, Euro strength and the more challenging economic environment, we will deliver a strong operating profit performance in the financial years 2008 and 2009. Our confidence is based on (i) our ability to recover increases in input costs, (ii) our flexible business model, (iii) delivery of merger synergies, and (iv) diversity of the Group's businesses.

(i) Input cost recovery

The most significant elements of the Group's input cost increases are jet fuel prices and foreign exchange movements.

The Group is well hedged for fuel and foreign exchange for all open seasons and operates relevant and effective hedging policies in each source market. We have continued to hedge well ahead of the booking curve to give us certainty of cost when setting our pricing. 

Group Hedged Position 

UK Hedged Position 

Based on the achieved hedged rates and the current forward rates, we expect the Group to spend approximately $1.8bn on jet fuel in the current financial year, representing approximately 8% of Mainstream revenues. The hedged rate achieved is lower than the current market rates in all open seasons, despite the recent falls in oil prices. If we were to close out our exposure at current forward rates, our financial year 2009 effective fuel rates would be 28% above financial year 2008 in local currency terms.

To illustrate the impact of higher jet fuel prices in the UK source market for Summer 2009, the increased fuel cost on a per passenger basis is as follows:

UK Increased fuel cost

To recover fuel, exchange rate and all other cost inflation in financial year 2009, our average prices would need to rise by c.6% in the UK, and 2-4% in most other mainstream source markets, with the UK cost inflation exaggerated by the strengthening of the Euro versus the Pound. In our European source markets, the strength of the Euro is partially mitigating the increase in Dollar denominated fuel prices.

Whilst input cost pressures are significant, our current trading statistics for Winter 2008/09 and Summer 2009 show that we are achieving more than the necessary increases in average selling prices. 

(ii) Capacity Management and Flexible Business Model

The flexibility within our model provides considerable scope to adjust supply as market conditions develop to ensure we achieve our target margins. Our options include, but are not limited to:

• removal of capacity from the Group, through lease attrition, early termination of leases, leasing out aircraft and reduction in third-party flying; and

• reallocation of capacity within the Group, such as shifting capacity between segments (e.g. long-haul to medium-haul) or between source markets. 

As part of our capacity management procedures, we are making further supply reductions for next year, primarily in the UK source market: 

• Our UK business is now planning to reduce capacity by 21% in Winter 2008/09 and by 15% in Summer 2009 through a reduction of our third-party flying programme and the removal of a further long-haul aircraft next summer. We are now planning to operate six fewer aircraft in Winter 2008/09 and eleven fewer aircraft in Summer 2009 than in the current year.

• In Germany, we are planning to operate at least three fewer aircraft in Summer 2009, representing 6% reduction in capacity.

Effective capacity management results in fewer holidays to sell in the lates market. This is the period when traditionally it is more difficult to recover cost increases. Shifting the mix of sales away from the lates market is a driver of higher average prices and improved margins. Our capacity reductions, coupled with continued strong demand for holidays, result in us having:

• 20% fewer holidays left to sell than prior year in the UK for Winter 2008/09.

• 15% fewer holidays left to sell than prior year in the UK for Summer 2009. This is similar to Summer 2008.

(iii) Synergy delivery

Our synergy delivery is on track and integration is progressing well. We have now completed the necessary actions to deliver the full-year synergy target of £25m, £11m of which has been delivered in the nine-months to 30 June 2008. 

Actions undertaken to date are expected to deliver an exit run-rate for the current financial year of £56m, meaning that the majority of next year's synergy target of £80m is already in place. Detailed plans are in place to achieve the remainder of the target. We remain confident of delivering at least £150m of synergy benefits.

Synergy phasing

In the quarter, we achieved a number of key milestones, including:

• Integration of our UK airlines, which are now operating under one licence for Summer 2008; 

• Implementation of a single overseas management team operating in resort; and

• The transition of our HR function to the UK head office in Luton. In the quarter, we also commenced the consolidation of our Mainstream call centres and customer service operations, which we expect to finalise in October.

(iv) Diversity of the Group's businesses

The wide portfolio of businesses within the Group reduces risk associated with any one geography or product. In the financial year to 30 September 2007, non-UK businesses represented 63%1 of Group underlying operating profit and the non-Mainstream businesses contributed 43%1 of the total.

Underlying operating profit by geography

1 Based on Pro-forma results to 30 September 2007

Summer 2008

Summer 2008 trading has remained strong across all sectors since the last trading update on 13 May 2008.