Tui won the battle of the “Vertically Integrated” tour operators with the collapse of Thomas Cook in September 2019, but had the spoils stolen from them by the Covid-19 outbreak shortly thereafter that brought the UK travel industry to a halt.
Unlike Thomas Cook, the management of Tui had protected themselves from the growth of OTAs and the expansion of low-cost airlines by securing exclusive access to the best-located large beach hotels around the Mediterranean, allowing them to create holiday concepts such as Holiday Villages and Sensatori Hotels. This “Exclusive” hotel stock, combined with a fleet of 13 “Dreamliners”, created a high-quality “Package Holiday” product that built strong brand loyalty and relatively high margins.
However, the “bigger you are”, the “harder you feel” during the Covid-19 closure and Tui’s high level of hotel commitments and empty aircraft quickly created a “debt mountain” that required a major intervention from the German Government to secure Tui’s survival.
Post Covid-19, the impact of this debt mountain meant that Tui could not afford the massive hotel pre-payments and guarantees required to retain their “exclusive” access to their hotel stock, allowing newcomers like Jet2 Holidays to gain access and pick up much of the Thomas Cook former capacity as the holiday market rebounded in 2022 and 23 seasons.
At one point, it looked like Tui would “run away” from their short-haul beach heritage and use their Dreamliner aircrafts range advantage to focus on long-haul and mid-haul destinations like Mexico, the Dominican Republic and Cape Verde, which their narrowed-bodied low-cost carrier competitors could not reach.
However, in Summer of 2024, due to the arrival of a new fleet of the replacement 737 Max short-haul aircraft, Tui is now attacking Jet2 Holiday’s market leadership by adding a whopping 12% or 1.1m more ATOL bonded packages to their short-haul program.
This, combined with 1,500 new hotels, clearly indicates that Tui intends to remain a volume short-haul beach player, and means it will have its hands full, filling this capacity in a Summer 2024 lates market that has seen an increase of 10,000 million holidays to sell.
Whether the lates market becomes a “blood bath” or not remains to be seen, but the timing of signing a deal with Ryanair to add even more capacity seems very odd and probably indicates that it is based more on the convenience of PR timing for Ryanair than a major new strategic alliance.
Cleverly, Tui will protect itself from Ryanair’s poor customer service ethos by selling its flights under its secondary “First Choice” holidays brand, keeping the Tui brand based on its in-house airlines flying. Tui intends to increase its relatively low mix of Dynamically packaged holidays from its current 2.5m passengers and could easily sell 1m Ryanair seats by boosting its city break offering or adding more duration flexibility to its beach holidays.
Out of small Dynamic Packaging “Acorns”, major strategic alliances can be grown, and competitors will rightly fear the coming together of Europe’s strongest tour operating brand and cheapest airline, Ryanair.
Once Tui gets to 1m plus seats, Ryanair is bound to wonder what a full-fledged strategic alliance could add to their passenger volumes as it seeks to increase market share dramatically to fill its large orders of new aircraft. At the same time, the Tui commercial team will have become addicted to Ryanair’s cheap early fairs to create early demand and the ability it gives them to put on their own internal airline’s transfer pricing seat rates.
Therefore, although in the short term, I think the relationship will be more “huff than puff”, in the longer term, we could see the next evolution of the Tui brand if, by default, it becomes the tour operating arm of Ryanair.
This factor could keep Tui in the fight for UK market leadership. However, the future will still be Orange and dominated by EasyJet Holidays, as most partnership deals with Ryanair fall away due to their excessive demands.
The evolution of the UK holiday market is happening fast, and it will be a fascinating watch for the next few years.