(Bloomberg) -- Tour operator TUI AG warned that it’s battling overcapacity this summer in the Spanish vacation market, while a deadline looms for its grounded fleet of Boeing Co. 737 Max jets.

The Hanover, Germany-based company reiterated its forecast for a 2019 drop in underlying earnings before interest and taxes of 17%. But expenses related to the Max grounding will rise by one-third if it can’t get the jet airborne by July. That would lead to an Ebita drop of 26%, and TUI needs to know about the Max’s status by the end of this month to make the deadline.

Key Insights

• Through the first half of its fiscal year, TUI’s seasonal operating loss widened by three quarters to just over 300 million euros ($336 million) as over-capacities in Spain, especially on the popular Canary Islands, depressed profitability. The Max planes accounted for only 5 million euros of that. Brexit uncertainty was another factor it cited.
• Through May 5, bookings for the most important summer season are down 3%. While average prices are up 1%, margins are so far “considerably lower” than a year ago.
• The Max grounding has hit TUI, the plane’s biggest operator in Europe after Norwegian Air Shuttle, in a second way. Some tourists are avoiding flying altogether, as TUI saw bookings drop 10% in the immediate aftermath of the Ethiopian Airlines crash of March 10, and they still haven’t fully recovered.

Market Reaction

• TUI shares had fallen to their lowest levels since it was merged with sister company TUI Travel. Consecutive profit warnings in February and March have led to drop of 28% this year.

To contact the reporter on this story: Richard Weiss in Frankfurt at rweiss5@bloomberg.net

To contact the editors responsible for this story: Anthony Palazzo at apalazzo@bloomberg.net, ;Erhard Krasny at ekrasny@bloomberg.net, Tara Patel

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