Digitalisation, climate change, Thomas Cook insolvency: 2019 was in many respects a turbulent year. We talked to TUI CEO Fritz Joussen about challenges and opportunities in a changing world and how TUI – as a platform company and as a brand – intends to maintain a stable market position in the future.
Mr Joussen, the last business year again had a number of special moments up its sleeve for you and your colleagues …
2019 had a distinctive flavour in every respect. We pursued our hotel strategy systematically with a record number of openings. We have expanded our offering with 25 new hotels in nine countries, so we now have over 400 properties in the portfolio. We have two new luxury expedition vessels at Hapag-Lloyd Cruises and the new Mein Schiff 2 has joined our fleet of cruise liners. Our excursion and activity platform Musement has been available to 200 million Asian customers since March in cooperation with Ctrip, and it has of course already been integrated into the TUI app for our guests in Europe. Parallel to that, we sold the French airline Corsair in spring and the specialist tour operators Berge & Meer and Boomerang in summer. They were not part of our core business, so they didn’t generate any synergies. This enabled us to sharpen our profile even more. Taken together, all these factors are concrete steps towards implementing our strategy. We are consistently restructuring and placing a clear focus on strategy, business and investment.
But there were some difficult moments in the past year, weren’t there?
The grounding of the Boeing 737 Max confronted our industry with major challenges. The Group Executive Committee quickly agreed: our customers’ holidays are our top priority and must not suffer. It was, after all, just before the Easter holidays and the launch of the summer season. We rapidly sourced replacements and were able to ensure every trip, just as our customers rightly expect from TUI. However, the follow-on costs of the grounding are enormous and weigh on our annual result to the tune of 300 million euros. TUI is as fit as a fiddle and was very successful again in 2019, but naturally the 737 Max will show up in this year’s balance sheet. Of course, we were affected by Thomas Cook exiting the market and that stretched many of our colleagues, especially in the first few weeks – for example, when they were helping our former competitor’s customers who had been stranded on holiday. We did a lot to offer new prospects to hard-working Thomas Cook staff. In the UK and destination countries in particular, we organised job fairs and also began recruiting very quickly.
TUI shareholders have been accustomed to a double-digit rise in earnings over the last four years. In 2019 investors were treated to two profit warnings. What’s going on?
2019 was an unusual year. What’s clear is that TUI is still a growing company. And the growth in tourism is intact. It is still the case that more people are travelling every year. That isn’t going to change. Quite the reverse: in many countries around the world, there are new middle classes emerging who are discovering the joys of travel for themselves. From the start of 2019 there were signs that the weakness of sterling in the wake of the Brexit announcement, but also the aftermath of the phenomenally hot summer of 2018 with shifts in destination demand, would have a massive impact on the already low margins of our traditional tour operators. Shortly afterwards came the grounding of the 737 Max, with the earning effects I have just mentioned. This underlines the fact that the first step in our strategic development, the move from tour operator to investor, developer and operator of hotels, cruises and holiday experiences, is turning out to be absolutely correct. In this tough environment we have once again achieved earnings at the same level as our record year 2018 – once we factor out the one-off impact of grounding of the Boeings. The transformation since 2014 is a strong foundation and the basis for our success. Now we are about to enter the second stage. This will be a bigger step and will change TUI even more deeply.
Why have you initiated the second stage in the transformation? Wouldn’t this be a good time to restore some calm in the organisation?
If you want to maintain your lead, standing still is not an option. The future never lies in a historical business model. Our customers’ needs are changing, and so are their lifestyle and their holidays. Thanks to our successful transformation into a hotel and cruise group, we have established a strong springboard for the consolidation that is now taking place in the market. We began more than two years ago to place our business on a more digital footing – by investing in IT and digital platforms, artificial intelligence and the digital development of new markets in the world’s growth regions. Much of what we had begun doing was not immediately apparent in its strategic and commercial significance to TUI. That has changed. It is paying off: for customers because of a more personalised offering, and for the Group because of access to new markets. And of course in our earnings.
»We have a strong springboard for the consolidation in the market and are evolving into a digital and platform company. Standing still is not an option if you want to maintain your lead.«
Fritz Joussen, TUI CEO
Where is the Group heading?
Hotels and cruises will remain strong pillars, but we are becoming a true digital and platform company. It’s less capital-intensive and more scalable. That is where we are heading. The restructuring has begun. Purchasing the Milan-based technology company Musement to market activities and events globally was an important piece of that.
“Platform” sounds intriguing. What exactly should we understand by that? Will we soon stop travelling with TUI?
On the contrary, customers will be getting far more services from TUI. We will also be offering integrated travel in future. But with algorithms and artificial intelligence we can already do things that were impossible in the past. We can offer much more personalised services, and on a big scale, so for a large number of customers. In the old days, if you customised production, your costs immediately spiralled. Today, with the right infrastructure, it’s no problem to combine personalised offerings with attractive pricing. We are doing that, for example, by linking Musement, our new activities portal, into our smart CRM system. On one side around 150,000 products, on the other 28 million customers. The result is a kind of Amazon for holiday experiences. The advantage of a platform company as against a product company is that yields are much higher and require less capital input. For hotels I need land. Ships are also capital-intensive, and due to the shortage of shipyard capacity in Europe there is a long lead time between placing the order and taking delivery. That is why for the last two years we have been investing selectively in platforms for digital business models.
There are already quite a few platform providers for activities, and they have been attracting millions from investors. What can you do better than the others?
TUI’s platform is the technological leader in the field. We are investing in the technology and we don’t need to invest in reach like other providers. We already have that with our 28 million customers. We are much closer to our customers. We know months in advance where they plan to spend their holidays and what their preferences are. This means that – as long as they consent, obviously – we can tailor offers to suit them. Very individually. We gauge our success in “conversion”, or how many offers result in a customer’s decision to buy. The statistics are gratifyingly high. Besides, unlike everyone else, we have 9,000 TUI employees out there in the destinations. That conveys a sense of security, guarantees quality. If someone is buying a ticket for the Louvre, that doesn’t matter, but it does if they want to take a trip in a hot-air balloon in Morocco. The TUI brand is extremely robust, firstly in the destination countries, which enables us to offer particular experiences there that we design ourselves. And also among the customers who know us and realise that TUI stands for quality and good service.
Many investors are losing money on digital business models. Are you?
No, it’s already reaping rewards. Our earnings from these areas are growing every year by at least 20 per cent. 50 million euros, or about five per cent of the Group’s total earnings, are already coming from that segment after such a short time. Half our earnings growth is expected to come from the platform business in future years.
A second theme for the future goes by the unwieldy name of GDN-OTA. What’s behind that?
Admittedly quite unwieldy, like so many names in the digital world. We have developed a completely innovative global distribution network for our own hotels. Now we will open it up to third-party hotels. 200,000 customers a year are already using it to make bookings. This offers great potential to hotel-owners. You might say we are showing them the ropes. We give them the technical wherewithal to essentially market every room separately. Whether customers are willing to pay extra for certain services is a personal decision and takes different forms, and the offering should be just as individual. Today, via the usual portals, I can only market a handful of room categories; through us a hotel can market every room separately, like the room that gets the morning sun or a room near the Kids’ Club. And all this for a chance of enhanced earnings and at an absolutely competitive cost. The hotels benefit and so do we at TUI. We need these platforms and services anyway for our own hotel companies and brands. That’s why we developed the IT. Opening it up to others brings us efficiency gains and additional revenues.
What role will the national markets still play?
Confining yourself to trading in travel modules, which is the classical tour operator business, has become harder for the whole sector – and it won’t get any easier in the future. That’s why the market-based companies are closing ranks, and hence becoming more efficient. There is no way around that. Nonetheless, the markets still have an important role to play. They cater for a huge outreach, already 21 million customers, and ensure high capacity rates for our hotels. That is why our own hotels are far more profitable than other hotel companies. Despite that, the markets must tackle constant change. We are currently harmonising our IT across all markets. That applies to almost every department from sourcing to flights, from distribution platforms to customer relations. In the future this will all be founded on a common standard. We could translate that by saying we build one car, then we sell and run it in all the markets. In two years that harmonisation should be complete. So within a short space of time we will have created a simple, flexible organisation across all market organisations while at the same time securing TUI’s strengths in all European markets. This is above all our extremely efficient distribution, close to the customer and to the market with all its distinctive characteristics.
The TUI brand is well established. People trust it. Will that still matter in five years?
TUI stands for unique experiences, quality, security and innovation in holiday activities. Brands are actually crucial in the digital world. If I book a service online in a country that may be 4,000 kilometres away, I want to know who is behind it. TUI’s customers know that very well. Our strong, distinctive brand is and remains a key competitive advantage. A holidaymaker in a hotel recently told me “once TUI, always TUI”. Our 70,000 employees take pleasure in that recognition and trust. It is above all to their credit.
Change of subject: Greta Thunberg and Fridays for Future were often in the headlines last summer and they unleashed a debate about climate change. What do you say about that?
It’s understandable and I think about these things too. I also believe that the Greta movement has unleashed something fundamentally positive. But the idea that we can save the planet by refusing to fly is too easy. There’s too much politics, ideology and symbolism there, but we won’t solve the global carbon challenge that way. Ever since industrialisation carbon emissions have risen in proportion to prosperity. The better off we are as a human race, the higher the carbon emissions. The biggest factors are – in this order – heating, individual transport, construction. Flying accounts for about two per cent of global carbon emissions, similar to total commercial shipping, which means 50,000 merchant ships and only 400 cruise liners. In other words, less than one per cent of ocean-going vessels are for cruising. Wherever there are holidaymakers on board, the standards are much higher. All environment-friendly innovations therefore come from the cruise business. In the meantime, the entire shipping sector is mobilising, and quite right too. Besides, we shouldn’t be telling people that if we stop flying we will save the climate. Unfortunately the global economy doesn’t work like that. And people will be disappointed because even though they have made the effort it won’t affect the overall volume of CO2. Not flying here won’t really help the climate if we bear in mind that China is currently building or planning 165 new airports. As long as we go on digging oil and gas out of the ground, it will carry on being burned somewhere in the world. We can only reverse the trend by uncoupling prosperity from carbon emissions.
And? Will that work?
Why not? We have hydrogen, which is a carbon-neutral source of energy. Although at the moment producing it is still too expensive. For hydrogen to replace oil and gas, producing one kilowatt-hour will have to cost about two cents. The only way to do that is with solar energy in the desert. Anything we do locally will have largely no effect on the climate target. This is a global challenge and we have to involve the oil producing countries. Otherwise the oil will be supplied to countries that don’t want to accept our standards.
»When you travel you learn about other cultures and broaden your own horizons. That can’t be wrong.«
Fritz Joussen, TUI CEO
Another buzzword this year has been “overtourism”. That must worry you, given that TUI relies on places where lots of people like to be.
The biggest problem is not overtourism, which only happens in a few places and for a few weeks of the year, but undertourism. In the Caribbean we can observe this very well if we take the example of two countries on the same island. In Haiti there are hardly any tourists, in the Dominican Republic right next-door there are very many of them. Where there is tourism, child mortality is lower, life expectancy is longer, training is better, average income is higher, health care is better, and water purification and waste disposal work. Everything is better where there are tourists. It stabilises the whole society. For many countries, tourism is currently the only opportunity to develop. Our task as a tourism group is to enable the destination countries to profit from the positive effects of tourism, so that value is created locally and people benefit from training and jobs. TUI Care Foundation, which was set up by TUI, is working in 25 countries around the globe at present to tap fully into the positive impact of tourism for the benefit of local people.
Even so, in many places travelling is almost considered distasteful …
Travel used to be for elites. Now everyone has a chance to discover the world. The demand to stop travelling is not a good idea – especially at a time of major global challenges. We can’t resolve the carbon issue we were just discussing without a global effort. So people should be meeting each other more, not less. When you travel you learn about other cultures and broaden your own horizons. That is the future.
The perfect cue. Let’s hazard a glimpse of the future. Where will TUI be in five years?
In the last five years we have evolved from a tour operator to a hotel and cruise operator. In the next five years we will evolve into a digital and platform company. There are exciting times ahead for TUI. I can rely on a fantastic global team who are driving the change, well aware of the tremendous opportunities for TUI. Our vision “Think Travel. Think TUI.” is extremely powerful and is unfolding enormous energy