May 2017, London
Is digitalisation really the new abracadabra?
Following recent results from the world’s biggest tourism company, Sally White analyses how digital fits into its TUI2022 agenda and what the stumbling blocks might be
If only it were as easy as one click and corporate targets are met and the cash comes flooding in! Indeed, some UK City analysts certainly seem to feel that the launch of the ‘TUI 2022’ digital strategy is relying on magic. With the jaundiced eye of sceptics they fear a mountain of bills overwhelming the cash piling up, even if TUI is well ahead of the game online.
What TUI announced, with its Q1 figures, was expansion into Spain, Portugal, Brazil and above all China, among others. These are all holiday destinations for TUI. Now it “aims to consistently expand these destinations as source markets, too. This will primarily be achieved on the basis of a digital, standardised, globally scalable software architecture as well as global expansion of the strong TUI master brand.”
TUI 2022 target: to generate additional turnover worth a billion Euros and reach out to one million new customers
Headlines next day picked up the large numbers that TUI had, with astute marketing savvy, dropped into its press release. This was that the ‘TUI 2022’ target “is to generate additional turnover worth a billion Euros and reach out to one million new customers...” To keep investors from getting too excited, it added a timeframe - within five years.
In fact, TUI already has 20 million customers, so another million would be just 5% more. And turnover last year was over €17 billion, thus that €1 billion is in the same ballpark. In Q1 2017, revenues rose 12%. So, given the speed at which Chinese overseas traveller numbers are increasing, these figures are not that high after all!
What concerns the brokers’ analysts is TUI’s cash flow. Will it pull in enough money to run and fill its 150 planes, 300 hotels and 14 cruise lines and pay staff pensions and shareholder dividend bills? At the moment, as TUI restructures itself into an integrated tourism business, it is still loss making (though the numbers are improving). Dividends are being paid from debt: not something investors like! If the dividend looked in danger a number would rush for the exit. Nor do they necessarily want TUI to sell off legacy businesses to raise money.
TUI’s emphasis on the digital reflects its long-term commitment. Yet the statement was also there to send a message to shareholders that it could pull in more bookings without increasing planned investment spend.
CEO Fritz Joussen put a bit more colour into ‘TUI 2022’ at the AGM in Germany a few days ago. These new markets, he said, would be run on the basis that they “must be digital” and they “must be targeted to fill our own hotels.” So, TUI would look to South America to fill its Caribbean hotels or China for its Thailand properties. Those one million more bookings would, in other words, be incremental and not requiring new hotels.
TUI is relying on its digital skills, in China in particular
TUI is relying on its digital skills, in China in particular. In a press call Joussen indicated that TUI was well aware of the difficulties encountered by other western groups there. To avoid getting a “bloody nose”, it would focus on web-based services, in India, too.
TUI has been steadily increasing its online distribution - from 38% of the business from source markets in 2014 the proportion had risen to 43% last year. Key to its digital strategy is its ‘TUI App’. This mobile app is a digital assistant which gives information from booking to hotels, leisure activities on offer, excursions and access to social media. (Of course, it also feeds TUI’s database on customers and will be used to increase the personalised offering.) More services are being planned.
TUI already offers Virtual Reality goggles, and is trialling a TUI Smart band. And on the management side, it has Cabin Crew Apps and an in-flight retail app for cabin attendants. Again, more apps are in the pipeline.
Clearly customer experience is a strong focus for TUI and can hear more from Jeremy Ellis, Marketing and Customer Experience Director, TUI Group who will be speaking the upcoming EyeforTravel Europe Summit (May 3-4).
To make sure its board is up with all this technology, TUI has just appointed an executive board member with specific responsibility for the digital areas - IT and New Markets. He is Frank Rosenberger, Group Director Strategy and a member of TUI Group's Group Executive Committee. An industrial engineer, prior to joining TUI in 2015 he had group-wide responsibility for the global development of new business areas at Vodafone.
IT talent is massively in short supply globally
At TUI his territory includes a new online tourism platform which is based on LTE – high-speed wireless communication for mobile phones and data terminals. Through this, TUI aims to tap new global customer groups and markets, including Spain, Portugal, Turkey and Brazil.
For Asia, TUI recently entered into a cooperation scheme with China’s Alibaba's travel platform. This will additionally “promote dynamic strategic and operative developments,” TUI says.
One more mundane, but obviously vital, task that Rosenberger must be on top of if the strategy is to succeed, is holding and hiring top quality staff. IT talent is massively in short supply globally. And, as one analyst pondered: “This is a key question. If I was a techie, who would I prefer to work for - cyber security, for example, or the tourism groups?”
Join us at the EyeforTravel Europe Summit (May 3-4) to hear more from Jeremy Ellis, Marketing and Customer Experience Director, TUI Group