Last week TUI released Brexit-defying numbers and saw a its share price rise as a result but what is behind it? Sally White takes a look
TUI is ticking all the right boxes, playing it by the book. A single global brand, digital by default (even brochures are being scrapped), personalised marketing, rising prices, restructuring to focus on its most profitable operations and ones it understands...! No wonder it has won that currently rare validation for a travel company - a rising share price.
TUI is unusual in its industry in being so committed to digital. Comment by European deal platform dealroom.com is that 75% of the $55 billion package tour market is still offline. TUI gave a figure of 43%, up 2% for its online distribution in its H1 financial statement.
Sales, however, dominate in the unfolding of the plan being followed by what is now Europe’s largest tour operator. (A restructuring programme was drawn up after the 2014 merger of London-listed TUI Travel with parent TUI AG). TUI has confirmed that its specialist holiday arm, Travelopia, is the most recent and largest part of the group to go on the market.
TUI is thought to be seeking a valuation for Travelopia of 10-12 times core forecast earnings, according to City analysts. That is around €50 million, putting the asking price at €500-600 million. It has asked US corporate banking giant Citi to look around for it, with the target of completion by early 2017.
Anglo-German TUI Group CEO Fritz Joussen has said, according to Reuters, that it is selling Travelopia because its specialist companies did not use the TUI brand. Nor did they use its hotels, cruise ships or planes. Thus the opportunities for cross-selling and other synergies were limited. However, two companies, Crystal Ski and Thomson Lakes and Mountains do help fill the planes in winter, so they’ll stay.
Goodbye to niche brands
Stories around the industry are that the specialist, niche companies have gone with the departure of former joint-CEO Peter Long, who left in February. Behind the sale, as the stories suggest, is the fact that specialist brands are relatively unknown in Germany, and thus not understood.
Even the well-known UK Thompson brand, part of TUI, is being ditched. Thomson will be rebranded as TUI, a move expected to take place towards the end of 2017. Other markets are already migrating, with the Netherlands in the process of making the shift and plans for Belgium and the Nordics set for later this year.
Other parts of the merged TUI group, such as Hotelbeds, which sells hotel rooms to wholesale customers, have already been sold off. Interestingly this did not go to anyone in the travel industry, but to straight investors. These were private equity group Cinven and the Canada Pension Plan Investment Board, who paid up €1.2 billion. Rumours are, again, that it is private equity that is the most interested in Travelopia.
TUI’s share price rise has also has the support of good trading news. Joussen said last week (Sept 28) that the summer 2016 season was almost fully sold, with a continued strong performance by the UK, Riu and Cruises. Winter 2016/17 was trading in line with expectations, with further growth driven by long haul
“As we approach our 2015/16 year end, we are therefore confident of delivering between 12% and 13% growth in underlying EBITA. This demonstrates the strength of our integrated business model and the success of our content centric strategy, as well as the continued delivery of our merger synergies," he added, soothing fears that the group might follow easyJet and Thomas Cook with a profit warning.
TUI holidaymakers are, apparently, avoiding the eastern Mediterranean and going for Spain, Greece, Cyprus and further afield to Mexico and Jamaica instead. The UK’s Brexit vote in June has not hurt TUI either - or at least not yet - even though the pound has weakened. Although Joussen did warn that if sterling remained weak against the euro it would mean higher prices for British holidaymakers next summer.
TUI also launched two new cruise shops and opened five new TUI hotels this summer, part of the plan to acquire and market under the TUI brand over 50 new and existing hotels over the next five years. No fewer than 13 teams, with dozens of TUI are currently working on different aspects of its ‘oneBrand’ programme. Their workload encompasses everything from strategic and legal issues, online marketing and search engines to rebranding planes and buses.
When TUI announced that it was selling Travelopia it also announced that it had reached an agreement to acquire France’s No. 4 international tour operator Transat for $61 million. Being based right next door, this is an operation that TUI understands very well. It has been seeking to strengthen its French business.
According to German travel trade website fvw.com, “by acquiring fourth-placed Transat, TUI will rise from second to first place with 21% of the French market ahead of Fram and Club Med.”