TUI’s clear alignment towards tourism is backed by a strong financial position. Since taking over TUI Travel in the UK at the end of 2014, it has posted double-digit increases in its operating result every year. And TUI pays an above-average dividend. TUI is an international leader and sets standards for the industry. This success story is set to continue. The future will bring further growth. In the core European markets, in the flourishing hotel and cruise segments, and by expanding into new markets. The road has been charted in “TUI 2022”, the programme for a future era. Digitalisation is a high priority. Standardised IT systems offer an all-round understanding of customers and their travel preferences. Blockchain is already in use, managing global hotel capacities with transparency and efficiency. In this interview, Fritz Joussen, Chief Executive Officer of TUI Group, talks about the prospects for TUI.
»Digital means better service for the customer and more efficiency for TUI.«
Fritz Joussen, how would you define the prospects for tourism?
We work in a growth industry. Tourism globally has great potential. The destination countries and TUI will profit from that. The way our sector has been developing in the last few years clearly shows that people want to discover the world. They will travel more, not less, regardless of the international events that can always affect a particular country. But geopolitical challenges are by no means an elementary risk: we must be ready and able to respond to them. For our customers, there has been a huge increase in the number of countries they can visit in every corner of the world. Back in the 70s, 80s and 90s, there was a big focus on Europe, the Mediterranean and the Canary Islands, but these days people also travel to the Caribbean and South-East Asia. Today we operate in over 100 destinations. That makes us much less vulnerable if there are shifts in demand anywhere around the world. So the prospects are very good. Every year, except for 2009 at the peak of the financial crisis, tourism has grown faster than gross domestic product. I see TUI as well positioned to carry on picking up market share.
For the third year in a row, TUI Group has posted double-digit growth in its operating result. What are the success factors in your view?
A fantastic result! I want to thank the TUI team, all our 67,000 employees around the world. TUI in 2017 is a totally different TUI from five years ago. Basically we used to be a traditional tour operator, a trading company, and as so often in the trading business, that meant our margins were low. Today we develop, finance and operate hotel companies and cruise lines. TUI designs its own products, like our hotels, clubs and cruise ships. This is where we are growing and investing. These are business areas with strong margins and less seasonal fluctuation. Already these activities contribute more than half our Group earnings. That share is going to carry on increasing in future. In growth regions like China and South-East Asia, we want to reach out to new groups of customers. But not through travel agencies like in Europe. Instead we will adopt a fully digital approach, working with local partners. The middle classes who are now emerging in these places are just beginning to discover travel for themselves. Having a strong, consistent, international TUI brand helps us tremendously. Big brands with international visibility attract confidence and can upscale much faster, and that is invaluable in the Internet age.
Group investments are flowing increasingly into the hotel and cruise operations. Are the days of the tour operator numbered?
The tour operators have a very important role to play, although it has radically changed. Our tour operators all over Europe are the direct gateway to our customers. 20 million people take their holidays with TUI. That is huge potential, a vote of confidence, but also a fantastic basis for future growth. The tour operators are an important strength for TUI, especially as we look to grow with our own hotels, clubs and cruise lines. We don’t depend on intermediaries to achieve high occupancy rates. That minimises the risk for our own hotel investments. Last summer we managed to increase turnover and customer numbers in every region. So our markets are extremely strong, be it in Germany, Austria, Switzerland, the United Kingdom, Scandinavia or Benelux. The tour operators are still tremendously important to us. They do the marketing and sales where our customers are. They create the direct link to our holidaymakers, providing advice personally and online.
»We handle everything from A to Z. We are the trend scouts and we design the holidays for millions of people.«
The Group has changed enormously since the merger between TUI AG and TUI Travel. But that traditional image still sticks. In the tourism industry, it’s the online providers who are sexy.
What we are all about is service and greater convenience for the customer. Surely that is a contemporary idea. We are the trend scouts, we design the holidays for millions of people, we organise the trip from start to finish, and we are there on the spot with our staff whenever a customer has a question or needs help. We handle everything from A to Z. Is service old-fashioned? Perhaps our industry is a little to blame for that perception. We ought to revisit concepts like ‘travel agent’ and ‘package tour’. Sometimes unnecessary barriers are created between stationary and online sales, rather than combining the strengths and opportunities of both channels. The two go hand in hand. Basically, though, I have noticed a definite shift in that traditional image since we placed all our markets under the shared TUI brand. In countries where the brand has only been introduced recently – the latest were the UK and Ireland in October 2017 – we are perceived as younger and more digital. And now we have the single brand, it’s suddenly obvious to people how amazingly international we are as a Group. TUI is active in more than 100 destinations. That makes us all the more attractive to young target groups, both as a provider and as an employer. We are on the right road. Among our own staff, there is certainly a sense that they are proud to be part of a global TUI family. There is suddenly much more recognition, because our employees, and their families and friends, come across TUI all around the globe, and they talk about it.
So the digitalisation that you are vigorously pursuing across the Group isn’t just designed to brush up your image?
TUI is becoming more and more digital. I believe we are setting standards in the sector. We want to lead the field as innovation drivers for our industry. We have already made huge progress. To us digital means better service and more service – and tailored to individual travellers, couples or families. As a Group, implementing broader and better IT makes us faster and more efficient. We are looking to recruit the best IT developers and mathematicians for state-of-the-art yield systems. We are already using blockchain, and we have taken a stake in the Düsseldorf software company Peakwork. This digital and CRM focus was completely unknown territory for TUI, but it is paying off – in terms of efficiency, earnings and the willingness of customers to recommend us to their friends.
What specific goals have you set for your digitalisation campaign?
We have identified three areas to focus on as we develop our cutting-edge IT infrastructure. First, we want to make such intelligent use of the data that we can create added value for our customers. Second, we want to manage our global hotel and bed capacities more efficiently across the Group. And third, we want to build new markets. Those goals are the basis for “TUI 2022”, our programme for the future.
»With smart IT and central CRM systems, we are creating major added value for our customers.«
Let’s take a closer look at all those points. How can data help to reach out more personally to the customer?
First off, there’s no contradiction between good, personal service and digital leadership. Quite the reverse. We accompany our customers right along the value chain, from the booking to destination services and their stay at the hotel or on the ship. That gives us broad insights into the plans and preferences our customers have, such as what type of excursions they like or whether they go for a particular room category. If I know a customer likes to use spa and wellness facilities, I can bounce over some offers before their holiday begins and pre-book a few treatments at convenient times. The key to this is offering what is relevant to the customer, before, during and after the holiday. The opposite of relevance is spam. With smart IT and central CRM systems, we are now creating tremendous added value for our guests, because we know their preferences and we can address them as individuals. And for TUI as well, because we want to generate growth partly through add-ons and new services. Here again, we benefit from the strong brand and the trust that people place in it. If our customers book an excursion, a car rental or an insurance policy with us, it comes with a TUI tag on it and with familiar TUI quality. That is hugely valuable.
How will digitalisation help you to manage your own capacities?
Sometimes the simplest questions are the hardest to answer. Exactly how many rooms do we still have on Majorca this week? Where can we find the best prices for available beds on Kos? In the past, our central hotel procurement function set up separate contracts with individual hotel companies for every source market. Those countless agreements were often updated manually in a host of different systems. That approach was not only very time-consuming, it was also less transparent. So based on innovative blockchain technology we have developed a central platform where we can visualise all our hotel and bed capacities and transfer them between the different markets. If demand in Germany for hotels in the Canary Islands turns out to be greater than planned, our teams can draw on free capacity in other markets. That way we aren’t just making the customer happy by finding a room, we are also managing our quotas much more efficiently. That, too, should generate additional earnings in the period up to 2022.
That leaves the expansion into new markets.
We want to keep growing. One aspect of our growth strategy is to expand our business in countries where we don’t yet have a presence. That includes Brazil and China, for example, but also European countries like Italy and Portugal. In those markets we won’t be building a physical sales structure, which means we won’t be opening any travel agencies. Instead, we want to do all our business online. That is why we have been developing our LTE platform, which compiles components like flights and hotels into a package in real time. Moreover, the design uses such standardised procedures that we can scale it however we want. In the next five years we aim to gain one million new customers as a result of the expansion and generate an additional billion in turnover.