I must admit that, mentally, I had written TUI off as a spent force in the UK. It had not expanded its ATOL bonding beyond 5.9 million passengers in the last four years. It had been overtaken by Jet2 Holidays at 7 million passengers, while being chased by the rapidly expanding Love and EasyJet Holidays.
However, listening to Tui’s newly appointed CMO, Bart Quinton Smith, the first speaker from Tui at the ITT conference in 10 years, reminded me of the mega brand they maintain and the expansion opportunities that Tui “Smile” offers.
As most readers will know, the dominant UK Thomson brand was phased out in 2017 and replaced by the group-wide TUI Smile branding. Although this transition was executed smoothly, it ironically left many customers under the impression that Tui had previously been Thomas Cook, following the latter’s collapse and subsequent disappearance in September 2019, just before the travel industry’s shutdown due to COVID-19 in March 2020.
The collapse of Thomas Cook left Tui as the only remaining vertically integrated tour operator, well-positioned to acquire its market share. However, when COVID arrived, the larger you were, the harder you were hit.
Thomson and then Tui succeeded where Thomas Cook failed by creating “Exclusive Product,” where they either owned the best-located beach hotels or had them tied up on long-term guarantees. This was combined with their own airline seats to provide a high-quality and controllable tour operation, featuring popular products such as Sensatori, Tui Blue, and the third-party-owned Rui brand.
However, this heavily leveraged position became a noose around their necks during the COVID-19 pandemic, leading to a staggering £5.6 billion loss for the business between 2020 and 2022. Without intervention from the German government, which extended a loan of £4.6 billion to the company, it would have collapsed during the pandemic. Although it ultimately survived, it left the business burdened with a mountain of debt and greatly restricted access to cash.
This meant that Tui could no longer guarantee much of its third-party stock, thereby granting access to the rapidly expanding travel sector based on low-cost airlines. This situation undermined its “product shield” and exposed it to the impact of operating “commodity products” that others also sold, albeit at a lower cost base.
The net impact was that Tui picked up virtually none of the Thomas Cook market share, which was quickly gobbled up by Jet2 Holidays and Love Holidays, both of whom have added 3.5 million passengers post-COVID.
Thus, I had a somewhat dismissive attitude towards the second-largest UK tour operator. However, I must admit that I was mistaken to discount them, as they are now making some intriguing moves.
Tui continues to reap the rewards of its early purchase of the Dreamliner fleet, which allows it to dominate the long-haul beach market, where it faces no competition from low-cost airline rivals. This, combined with the profitable hotel and cruise divisions that its competitors lack, is the primary driver behind their strong rebound to a £2.12 billion EBITDA in 2024. However, the net profit of only £505 million highlights how much mounting interest on their debt still holds them back.
More interestingly, Tui has signed a strategic deal with Ryanair to significantly expand its regional access to its remaining exclusive hotel stock and increase its sales of city breaks. If Love Holidays can add 1 million passengers to its ATOL this year after gaining permission-based access, with no API fees to Ryanair, why shouldn’t a major brand like Tui do the same?
Some commentators, of course, will focus on the negatives of Ryanair’s attitude towards customer service, which is diametrically opposed to TUI’s and could potentially damage the brand. Indeed, there is a risk, but I know it is one that TUI will monitor closely through its customer service scores and will incorporate provisions into its pricing. This will enable them, as ATOL holders, to replace Ryanair’s draconian amendment fees and cancellation policies with more acceptable alternatives that better suit their customer base.
The relationship is in its early stages, but a strategic alliance with the mega-leisure brand TUI offers significant benefits for Ryanair. As previously discussed, Ryanair’s brand heritage suggests it’s unlikely customers would trust them with their holidays; however, these same customers clearly accept them as a convenient bus service when packaged within a Tui holiday. Let’s be honest, there is little true brand differentiation provided by the Tui airline short-haul fleet, as seat pitches align with low-cost carriers, and their on-time performance, if anything, lags that of Ryanair.
Consequently, Tui UK, with its extensive retail shop network and online presence as a package holiday brand, offers a completely new and complementary distribution channel for Rynair flights that could enhance its initial load factors and overall profits. Equally important, Tui Group provides this opportunity to Ryanair not only in the UK but also in the crucial German market, where Ryanair, with 20 million passengers, ranks a distant third behind flag carrier Lufthansa’s 71.4 million outbound passengers. Remember, third is not a position Ryanair enjoys!
It also makes perfect sense for Tui to switch its long-haul customers to short-haul beach or city breaks between their long-haul excursions. I’m also sure that their events and attractions arm, Tui Musement, is rubbing its hands together at the prospect of creating a rich events and excursions-based city break holiday within a greatly expanded city break offering from their sister tour operator.
More products under the same branding are always a winner, as long as they do not dilute Tui’s quality positioning. However, Tui is adept at maintaining quality and customer satisfaction, so I don’t foresee this as a concern.
So, with a receding debt mountain and some interesting strategic moves, the leisure giant that is Tui in the UK may finally be awaking, and it was great to be reminded by the eloquent Bart about their brand’s opportunities.
Until Tui reduces its substantial debt, it will remain a relatively unappealing option for potential suitors. However, one could easily envision a future bidding war among profitable and well-financed low-cost carriers lured by their pan-European distribution.
Maybe one to watch, guys!