TUI Group turns to online reservations as it revamps its business

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It turns out that TUI is not immune to the challenges facing the rest of the European travel market.

Patrick Whyte, Skift

European travel company TUI Group has spent the last few years moving away from its past as a tour operator, and looking at its latest financial results, it’s easy to see why.

The company flagged the problems in a profit warning last week, after appearing immune to the industry-wide challenges facing its smaller rival Thomas Cook.

Winter has traditionally been a weaker time for European travel agencies, with most people not going on vacation until summer, but even taking this into account, TUI’s quarterly performance was still poor.

The company blamed the impact of last summer’s European heatwave on bookings in winter and summer 2019, overcapacity in Spain and the weakness of the pound on Tuesday.

“[T]These results demonstrate the continued strength of cruises and hotels and the vulnerability of tour operator earnings to even small price fluctuations, ”said Richard Clarke, analyst at Bernstein.

TUI’s seasonal loss increased 64% to $ 126.8 million (€ 111.9 million). Profits from its tour operator division fell 27% to $ 201.9 million (€ 178.1 million). .)

“The coherent transformation of TUI launched in 2014 involving a realignment to focus on the group’s own vacation experiences… – hotel companies, cruise lines, activities and services in destinations – has turned out to be the right one. approach. These activities now represent nearly 70 percent of the group’s profit, ”TUI said.

“The growth strategy for this segment remains intact. Traditional tour operators and airlines tend to be more vulnerable to external factors. “

TUI recovery plan

TUI described a few things that would help turn the tide. She wants to reduce distribution costs and focus more on online and direct bookings. You would assume this would come at the expense of third-party travel agents and physical stores, both of which are more expensive ways to sell TUI vacations.

There are also big plans for her Tours and Activities division, which she spent the last year expanding. In a fragmented market, TUI estimates a potential opportunity of 170 billion dollars (150 billion euros) in the sector.

This division’s revenue increased 172% to $ 256.4 million (226.3 million euros), although it recorded a small loss of $ 5.3 million (4.7 millions of euros.)

Consolidation In the cards?

As airlines and tour operators struggle, TUI expects 2019 to be a year of consolidation. Last week another European leisure-oriented airline, Germania, collapsed.

“We have specific actions, which we have taken and are taking in order to be able to protect our market share and at the same time our cost position. And we believe the current environment will trigger market consolidation. And with our strategic and financial profile, we are able to benefit from this development, ”said CEO Fritz Joussen during a conference call with analysts.

TUI does not appear to be actively looking to buy any businesses (except perhaps in the tours and activities space) and will try to take advantage of other exciting markets.

Joussen has ruled out any type of agreement with Thomas Cook or his German airline Condor.

“[W]We are absolutely not active today in this regard, ”he said.

Thomas Cook said he was conducting a strategic review of his airline.

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