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Midas share tips TUI Travel 10 percent rise while Thomas Cook struggles

As Thomas Cook cuts 2,500 jobs and closes stores, rival TUI Travel, Britain’s leading holiday group, is having a strong start to the year and its have long-term potential.

TUI Travel was formed in 2007 from the merger of First Choice Holidays and German business TUI Tourism. The company is one of the largest travel groups in the world, with about 30 million customers annually, and more than 240 brands, including Thomson, Sovereign Luxury Travel, Hayes & Jarvis and LateRooms.

For many people, package holidays conjure up visions of scantily clad youngsters drinking too much lager, making too much noise and generally behaving badly. But many of TUI’s customers are over 50 and its family groups tend to include older children rather than younger ones.

Affordable: TUI prides itself on all-inclusive trips, so families know their exact costs before travelling

The company has also adopted a policy of exclusivity, so 90 per cent of its holidays are available only through TUI brands.

The strategy, developed by chief executive Peter Long, seems to be working well and TUI is focusing on growth. Long intends to deliver an increase in underlying profits of seven to ten per cent a year between now and 2018 and only last month said that he expected this year’s results to be at the top of that range.

Analysts expect profits to rise from £390 million in 2012 to more than £430million for the year to September 30 with the dividend increasing from 11.7p to 13p. Next year, profits of at least £465 million are forecast, alongside a dividend of 14p.

  More... SHARE PRICE: TUI Travel PLC More than half of parents happy to take children out of school during term time to save on holiday costs Share dealing service: £12.50 flat fee and cheap dividend reinvesting Fund supermarket: pay 0% initial commission on all funds and Isas bought online Sign up for exclusive Midas Extra share and fund tips

Holiday industry experts have been predicting the demise of the package holiday for years, particularly since low-cost airlines such as Ryanair and easyJet began to offer cut-price flights. The economic downturn was also expected to hit the sector hard.

However, TUI’s customer numbers have been growing. A series of disappointing summers have made even cash-strapped consumers determined to head for the sun and many see a package as the most cost-effective way to go. TUI prides itself on all-inclusive trips so customers know exactly what they will spend before they step onto a plane. The group’s scale also means it can secure attractive rates with hotels.

Most of TUI’s customers come from Britain, Germany and Scandinavia, but the group has sizeable operations in Belgium, Holland and France as well. Over time, Long hopes to add more customers from those countries, encourage them to spend more of their holiday money with TUI and attract customers from emerging markets, particularly Russia and other cold Eastern European states.

The group has already taken 600,000 Russians to places such as Turkey and Egypt and expects strong growth from the country as consumers become wealthier.

TUI still has 1,800 travel agencies across Europe but around half of its business is now sourced online and that percentage is likely to increase. However, there are still millions of people who prefer to book their summer holidays face to face, so the retail chain remains important.

Midas verdict: TUI shares have had a good run lately, but there is plenty more mileage in the stock. The group’s holidays range from sun in Spain to hiking in the Himalayas to Arctic cruises, so most needs are catered for at prices that millions of consumers can afford. Long has a clear strategy and he has shown he can deliver. The shares, which closed on Friday at 309p, are a buy.

Traded on: Main Market.    Ticker: TT    Contact: 01293 645795 or tuitravelplc.com

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