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Travel industry news

15 May 2019

BY Gary Noakes

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Tui boss distances operator from rival Cook after challenging winter

Tui Group chief executive Fritz Joussen has spelt out the differences between the brand and Thomas Cook as the two firms assess their mid-year performance.

TUI Blue Marmaris Turkey Web.jpg
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Tui spells out investment strategy and Boeing MAX impact

Tui issued its first half results on Wednesday (15 April), characterised by deepening winter losses it blames on a late Easter and overcapacity in Spain.

 

Cook, meanwhile, will post its first half results on Thursday (16 April) following a challenging six-month period for the historic travel firm, during which it has placed its airline business up for sale, consulted lenders over a reported £400 million "liquidity buffer" to stave off winter pressures, and announced the closure of another 21 high street stores, as well as plans to cut 100 head office roles.

 

Joussen though said the two companies had completely different structures: “Only 30% of our profits look like Thomas Cook’s; the rest is from our cruise, hotels and destination experiences and we are much more competitive,” he said. “Vertical integration and scale is the reason for our profitability.”

 

He added he was not interested in buying Cook’s airline and said investment would be targeted at “destination experiences and digital platforms, not necessarily in-country consolidation”. Tui would concentrate on growing its hotel, cruise and destination experiences divisions while increasing digitisation, he said.

 

Tui purchased Milan-based activities platform Musement in September and has since doubled the number of activities and excursions sold through it to 2.4 million.

 

“Destination experiences is one of the big bets for the future. It is a huge global market and very offline. We are creating an open digital platform for our own customers and third party customers, like Chinese tourists in Europe. These can be additional customers in our hotels.”

 

Tui also plans to grow its OTA businesses in countries like India and argues that it is in a unique position compared to existing brands. “In these markets, there are already strong OTAs,” he said. “They make money by selling hotel rooms, so if we just get 10% of our traffic in our own hotels, it’s paying for itself.”

 

He said growth in this sector “will not be limited by the funds available” and added: “Maybe we will also consider acquisitions.”

 

'Turkey will be back big time'

Joussen said Tui’s summer sales were “slightly below last year in terms of load factors” and added they were “more skewed to late bookings”.

 

“We are an average 60% sold in all markets, slightly lower than last year," he said. "Bookings are 1% down, but this is more related to the capacity we have in the market; we have been cautious in our planning.”

 

The late Easter and “competitive pressure” was blamed for increased interim losses. “The main issue is over-capacity into Spain; people have better prices because of over-capacity and we have lower margins," said Joussen.

 

"It will be a trend continuing into the second half of the year, but we have a counter-effect in Turkey. Turkey will be back big time, although it is not as important in winter and the benefits will only come in the second half.”

 

He said Brexit had had some effect, making the pound weaker, but added: “It was not a very strong trend. I think the stronger trend is late booking. People somehow think capacity will be available and are waiting to see if the summer is hot.

 

"Do I see some speeding up of bookings right now? No, but I don’t see a specific Brexit-related booking pattern either.”

737 MAX deliveries on hold

The resurgence of Turkey has exacerbated overcapacity in Spain, particularly the Canaries, but Joussen said the grounding of the Boeing 737 MAX was “not a silver bullet” to solve the problem.

 

Tui has 15 MAXs and another eight on order, spread throughout its UK and European operation.

 

“We have taken out capacity, as much as we could. We did not want to sacrifice market share, so where it was strategic, we kept our position.”

 

He added: “If you just take out capacity, you lose slots. It’s not that easy; many of the aircraft are half sold; you can’t just take out aeroplanes.”

 

Tui will hear by the end of the month whether the MAX will re-enter service in time for the summer peak. “We have two scenarios; July or not at all for the summer season.”

 

The earlier date for the MAX’s return would affect profits by 17%, Tui estimates, while the aircraft’s absence for the full summer would have a 26% impact on expected full-year pre-tax profits of €1.177 billion.

 

“We won’t take any [new] deliveries until we have clarity. Of course we are in discussions, but that is our second priority because we need to get our customers on their holidays.”

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