Woman with an umbrella walk past the logo of TUI AG outside the company's headquarters
Woman with an umbrella walk past the logo of TUI AG outside the company's headquarters. Reuters

Europe's biggest tour operator TUI Travel reported a full-year pretax loss, blaming weaker trading in the UK, mainly due to increased winter losses resulting from capacity-led volume reductions.

However, underlying pretax profit rose 4 percent on good turnaround progress in the year, particularly in Canada, Germany scheduled flying and Nouvelles Frontieres, it said.

The early summer period was disrupted by a number of factors that increased customer uncertainty, including the volcanic ash related airspace closures, chief executive Peter Long said.

The leisure travel company took a 104 million-pound ($162 million) hit as a result of air space closures prompted by a giant ash cloud being emitted from an Icelandic volcano earlier this year.

Long said while current booking activity is good, driven by demand, the company remains cautious about 2011 given the continued economic uncertainty and the relatively early stage of the booking cycle.

The company, formed in 2007 through a merger between Germany's TUI AG's tourism division and U.K.'s First Choice Holidays, said it has seen sustained improvement in demand since July and recent trading for future seasons remains positive in most source markets.

In all, today’s results are likely to be seen positively. Despite a spring volcanic ash setback, booking levels continue to improve, with the valuation and degree of uncertainty which all holiday companies bring being the main factors preventing anything more positive than a strong hold consensus opinion,” said analyst Keith Bowman of Hargreaves Lansdown Stockbrokers.

For the year ended Sept. 30, pretax loss was 36 million pounds versus a loss of 94 million pounds last year. Underlying pretax profit rose 4 percent to 337 million pounds.

Revenue fell 2 percent to 13.5 billion pounds.

TUI's results come a day after Thomas Cook Group Plc posted lower annual profits as revenue fell due to a softer summer trading environment and planned winter capacity cuts. The Europe's second-biggest tour operator said trading in the UK was even tougher than anticipated, hit by reduced capacity and the impact of the volcanic ash cloud.

Bowman said TUI continues to justify its premium valuation rating over arch rival Thomas Cook. TUI’s greater focus on differentiated holidays such as sailing and biking provide it with wider appeal, appeal which the company is enhancing via greater duration flexibility.

TUI declared a final dividend of 7.8 pence, taking the full year dividend to 11 pence from 10.7 pence last year.

Shares of TUI Travel, a FTSE-100 constituent, are trading 4.6 percent higher at 224.30 pence at 09:28 am GMT Thursday on the London Stock Exchange.