Europe’s largest travel organizer TUI is at the outset of a major downsizing, its chief executive said, with plans to sell or integrate more than 100 of its 650 subsidiaries to streamline its complex, costly corporate sturcture.
“We want to concentrate on our core business,” said the TUI chief-executive, Friedrich Joussen, in an exclusive interview with Handelsblatt. That means the firm will focus on leisure travel, rather than on niche products such as language trips or adventure travelling, he said.
The change are coming about as a result of TUI’s upcoming merger with one of its subsidiary U.K.-based Tui Travel, which Mr. Joussen announced in June. Until now, the U.K. subsidiary of the German parent, which is based in Hanover, has been separately listed on the London stock exchange, though it is 54.5 percent owned by the Frankfurt-listed TUI AG.
While TUI AG, which also owns hotels and cruise companies including Hapag-Lloyd has a stake in some 650 different companies worldwide, the lion share of its revenue – 96 percent – has long come from Tui Travel.
Should shareholders approve the merger, the German parent will buy the rest of the shares of TUI Travel, simplifying its corporate structure and making the firm more flexible.
One share of Tui Travel is to be swapped into 0.399 of new TUI AG shares under the plan.
Tui AG had €18.5 billion ($24.8 billion) in revenue in 2013, beating out chief competitors Thomas Cook and Club Med, but all three have been losing business to online travel sites.
”The merger is very important. The current structure is inefficient. Synergies are possible in the areas of costs and sales. I estimate potential synergies to be about €1 billion,” said Frankfurt-based Equinet analyst Jochen Rothenbacher.
Mr. Joussen started with Hannover-based TUI AG in 2012, and previously worked for the British telecommunications company Vodafone. Mr . Rothenberger said he has “breathed new life into the company” and worked hard to streamline its operations.
TUI AG is Europe’s largest travel agency with revenues of €18.5 billion ($24.8 billion) in 2013, beating out chief competitors that include Thomas Cook and Club Med, but has been losing out to online travel sites that have been drawing business away from traditional tour operators.
TUI’s largest online competitors are U.S.-based online sites Expedia and Priceline Group – owner of booking.com – that were the world’s largest travel firms by bookings in 2013, with sales worth $39.4 billion and $39.2 billion respectively, according to Statista. TUI AG ranks fifth.
“Internet competition has been around for a while. It is one of TUI Travel’s biggest problems although the company has been able to increase the share of Internet sales to roughly 36 percent of total revenue,” Mr. Rothenbacher said.
To tackle the trend of customers booking their trips solely online, Mr. Joussen is planning to optimize the core business of a “pure leisure travel company” by combining Tui Travel’s main competencies, which is connecting travelers with hotels and services, and directing them more effectively to Tui’s own hotels and cruises.
Tui Travel is brokering holidays for 30 million passengers each year.
“Our own capacities reach five million and are not enough to accommodate 30 million customers that Tui Travel is dealing with,” Mr. Joussen said about Germany’s parent company, TUI AG. “We want to grow the number of our hotels and cruises and expand capacities.” The goal is to direct passengers to its home-owned hotels and services to optimize the company’s overall value chain.
This would mark an improvement on its current model, noted Equinet analyst Mr. Rothenbacher:
“TUI Travel hotel sales are about 15 percent TUI AG hotels and 85 percent hotels from third parties. And only 50 percent of TUI AG’s hotels are promoted by TUI Travel. The cooperation is really not that close. This can change after the merger.”
Tui AG does nearly all of its business in Europe – 93 percent, with only 4 percent of sales coming from the United States.
The more than 100 companies that will be integrated or sold involve services that are operating in niche areas such as language trips or adventure holidays. Those will be bundled and put under the supervision of executive Will Waggott, who was previously the finance chief at TUI Travel.
“In revenue and profit those subsidiaries amount to 15 percent of the overall business activities,” Mr. Joussen said. Those companies are not necessarily unprofitable, said Mr. Joussen. For example the company Hotelbeds, a Spain-based company that works like a stock exchange for hotel beds where travel agents are trading with different services and is the world’s leader in this segment. It generates revenue of €40 million each year.
TUI AG does nearly all of its business in Europe – 93 percent, with only 4 percent of sales coming from the United States. Online travel sites in the United States have been far more profitable. Priceline Group has a market capitalization of about $67 billion, compared to €5 billion for Tui Travel and €3 billion for TUI AG, according to the latest data from Bloomberg.
Mr. Joussen said in the future, German and European travelers are more interested in traveling far distances than to regional holiday places like Spain and Italy. “What will happen next is the democratization of long-distance travelling,“ he said. “More and more people want to travel to Thailand and the Caribbean.”
Franziska Scheven, Gilbert Kreijger and Christopher Cermak contributed to this story.