TUI Group

Long-haul, hotels and cruises to drive up profits

More long-haul holidays, own-brand hotels and cruise holidays combined with a single masterbrand will be the key drivers for profitable growth in the coming years, according to TUI Group executives.

Europe’s largest tourism group aims to improve underlying operating profits by 10% a year over the next three years, increase revenues by 3% a year and grow faster than the overall market, according to the ‘roadmap for growth’ presented at last week’s Capital Markets Day. Beyond financial targets, the package of measures is also designed to extend the group’s market leadership and speed up decision-making, especially as fast-moving online competitors expand their businesses.

Although most headlines were captured by the decision to roll out the ‘TUI’ brand as the tour operator and airline masterbrand in all source markets, joint CEOs Fritz Joussen and Peter Long also presented wide-ranging plans for the group’s entire business nearly five months after the merger between TUI AG and TUI Travel PLC.

Explaining the decision to replace well-established local brands with the ‘TUI’ name, Joussen stressed: “A global brand experience and a global brand identity offer many advantages for our customers and for our employees. A strong global presence of the TUI brand will strengthen our group’s competitiveness in the digital age.” In the first stage, covering Western Europe, the Dutch brand ‘Arke’ will be replaced by ‘TUI’ from September. In Belgium, the brand ‘Jetair’ will be phased out. In France the TUI brand will be introduced and Marmara will be retained as a holiday club concept..

TUI also wants to increase turnover with more online sales in its source markets and by using the platform to open up new markets. In February 2015, for example, the online platform was launched in Spain for the dynamic packaging of flights, hotels and transfers. Similar platforms are to be rolled out to other countries such as Portugal, Brazil and Turkey.

The online platform enables TUI to win additional customers and generate further growth, even in markets where it does not have an in-house travel agency and tour operator business. “This is a very innovative and efficient investment in IT. It offers our customers ease of use, individual options for choice and packaging of holidays and constitutes a further step on the way to the online world,” Joussen explained.

Similarly, TUI Group is also planning to use one single branding for its airlines, which currently operate around 140 medium- and long-haul aircraft in various markets under different brand names (TUIfly, Thomsonfly, Arkefly, Jetairfly, TUIfly Nordic). Management of the airlines has already been centralised to increase operational synergies. In the next step, according to the company, a strong one-brand policy will make it considerably easier to use aircraft and crews across the individual countries, as demand requires.

At the same time, long-haul flight capacity will also be increased, including third-party flying, as TUI has identified long-haul travel, with its higher margins, as a key growth business. The group has just ordered three longer B787-9 planes for delivery in the next three years to complement the existing fleet of 13 ‘Dreamliners’. Peter Long told analysts that TUI had strong growth opportunities with its different group businesses, both in major existing destinations and new ones.

In the hotel sector, the group plans to internationalise its brands and expand its portfolio by around 60 new TUI hotels by 2018/19. At present TUI has 310 hotels, with a mix of owned, managed, leased and franchised properties. In future, the core brands will be RIU, the new hotel brand TUI Blue, which will combine new properties and take over smaller brands, and the two club holiday brands Robinson and Magic Life. All these brands will expand their portfolios over the next few years. The offering will be rounded off by the three hotel concepts Sensatori (luxury), Sensimar (adult-only) and Family Life, with most of these more than 100 properties generally run as franchises.

Similarly, the lucrative cruise business will also be expanded with two more ships for German-based TUI Cruises and modernisation of the Thomson Cruises fleet. At same time, the group wants to increase cooperation between the two businesses and German luxury brand Hapag-Lloyd Cruises to increase synergies.

Meanwhile, TUI Group reduced its underlying seasonal loss by 20% to €273 million in the first half of the 2014/15 financial year while turnover increased by 7.3% to €6.94 billion, although about half of this rise was due to currency effects.

The Central Region, covering Germany and neighbouring markets, increased customer numbers by 3.6% and revenues rose by 5.8% to €1.93 billion but the seasonal operating loss broadened by 22% to nearly €94 million. The Northern Region (UK, Nordics, Russia) reduced its seasonal loss by 12% to €110 million and increased revenues by 9.6% to €2.15 billion. Hotels & Resorts profits soared 70% to €55.6 million while the Cruises sector made a profit of €18.3 million compared to the previous year’s €16.2 million loss.