TUI chief executive Fritz Joussen has unveiled a new ‘One TUI’ action plan designed to improve profitability by reducing head office jobs, achieving much better results in the hotel and cruises businesses, and stepping up cooperation between TUI Travel and the other TUI businesses to intensify vertical integration.
Joussen, who replaced Michael Frenzel as CEO three months ago, said the overall purpose was to increase the group’s value and make a dividend payment possible again from 2015. He aims to double operating profits from last year’s €519 million to about €1 billion by the end of the 2014-15 business year. In addition, the present negative cash balance should turn into a positive €100 million by 2015, with half coming from the hotel and cruise businesses.
The plans were unveiled last week as TUI presented its results for the half-year ending March 31, 2013. TUI increased group turnover by 2% to €6.8 billion and the seasonal underlying operating loss was reduced by 9% to €339 million from last year’s €372 million. Net results were weaker due to financial provisions for restructuring measures at head office and in the hotels and cruises sectors.
The main cost reductions will come at the group head office in Hanover where more than 80 of the 183 jobs will go, largely through non-replacements, in order to cut costs from the present €73 million to €45 million in the medium term.
In the cruise sector, loss-making Hapag-Lloyd Cruises will get a new boss, Karl Pojer, who has headed the hotels division until now. He has been given the task of turning around the company by reducing costs and improving utilisation levels. TUI has put aside €49 million for restructuring costs at the company, signalling job cuts at the premium cruise line which has just launched its new Europa 2 flagship. However, TUI Cruises, the joint venture with Royal Caribbean, will maintain its growth course. Observers are speculating that Hapag-Lloyd Cruises could be merged into the venture in future.
In the hotel business, TUI will closely review its diverse brand portfolio and could drop under-performing smaller brands such as Dorfhotel or Aqi. Grecotel, the joint venture in Greece, is being restructured at present. Even most of the Robinson clubs are currently not covering their capital costs at present, Joussen said. Moreover, TUI has written off €34 million from the high-profile holiday village project at Castelfalfi in Italy and is reviewing its future. TUI bought the complex several years ago and is investing heavily to turn it into an exclusive holiday village with a mix of rented properties and up-market hotels.
In the first half of the 2012-13 year, TUI Hotels & Resorts had stable turnover of €371 million and underlying operating profits improved by 35% to €75 million, largely due to a strong performance by Riu Hotels.
Joussen is putting a strong focus on improving internal cooperation and indicated that TUI’s tour operators will be expected to cooperate much more closely with the hotel brands in future to improve room utilisation and increase internal synergies.
“The group is to move substantially closer together in its existing structure and leverage the benefits of vertical integration more strongly than before. To this end, we will integrate the strengths of our content business such as hotels and cruises, our tour operators and the TUI brand. Taken together, they stand for the experience gained by TUI customers and form a basis for differentiation. If we understand, manage and develop the group from our customers’ perspective, we will create value”, said Joussen.
Together with TUI Travel, which runs TUI’s tour operating business and generates the bulk of revenues and profits, joint performance targets have been agreed for the German, French and Russian markets as well as the specialist businesses. The French and Russian tour operating businesses are in the red while Germany and the specialists should improve their profit levels.
The overall goal, according to TUI, is to transform the business model from a tour operator-dominated one towards content- and brand-oriented value creation, based around the group’s hotels and cruise ships. “Content combined with a strong brand leads to differentiation. Differentiated, exclusive products guarantee higher average prices and improved margins,” Joussen stated.