TUI’s $1 billion revenue goal leads to face-off with local online booking players

by | Jun 1, 2019 | Expansions, General News

TUI Magic Life Fuerteventura hotel in Spain

CEO admits the plans are ambitious but says TUI only needs a relatively small number of customers to reach its goals.

Despite recent obstacles within some of its core European markets, TUI is currently eying global expansion.

To execute a strategy that would see TUI entering new markets, the company will be trying new approaches.

In its current core markets such as the United Kingdom and Germany, it has 21 million customers, who purchase a pre-packaged vacation product and fly to their destination on TUI aircraft.

In new markets however, TUI looks to online travel agencies for inspirations.

Let’s take a look at how.

Dynamic packages for new markets

Selling dynamic packages to travellers will be a cornerstone of TUI’s changing approach.

The aim of this is to attract 1 million customers to brings as much as $1.1 billion of revenue by the year 2022.

Markets TUI is targeting as part of this effort include China, Brazil, and India, all of which already have strong local online travel players including Ctrip, Despegar, and MakeMyTrip.

This is a strong set of competitors but TUI CEO Fritz Joussen is relaxed about the competition and has suggested that the original target of one million was perhaps too “conservative”.

So far, the company has doubled the number of customers it had in 2018, now boasting as many as 200,000 passengers per year.

“We have asymmetric conditions because OTAs need to make money by being OTAs, and we make money by selling hotels. So…we can put some of the traffic into our own hotels and if we just got 10 percent of our traffic in our hotels the platform is paying for itself,” Joussen explained.

He added: “OTAs need to earn money with the platform and the sales…we can use vertical integration.”

Struggles back home

This all comes at a challenging time for the hospitality business in Europe.

There is fierce competition for companies like TUI in key markets such as Spain. Brexit and a massive heatwave last summer have also not made things easy.

As a result, there has been much pressure on TUI’s Q1 and Q2 performance. The Hanover-based company made a first-half loss of $426 million (€381 million), up 47.5% from last year.

Slipping further into the red isn’t necessarily a problem for such a seasonal business, as European travel companies like TUI make most of their money when people go on vacation over the summer months.

Overall, it has been a challenging year for TUI. The expansion strategy has the potential to counter that.

The idea is for TUI to use new markets to top up space it might have in its own-brand hotels, using a relatively cheap and risk-free model.

 

Let’s take a look at a few other projects currently underway by TUI:

TUI Bue Pulse Montafon

TUI Blue Fieberbrunn

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TUI AG and TUI Travel PLC have merged to create the world’s number one integrated tourism group.

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