Resorts

Why TUI wants to be more like Hilton

Insight Comment
When TUI relaunched its TUI Blue brand a couple of years ago, you sensed that it had some pretty big plans. Those plans could be turbocharged by tapping more outside investors.

With the travel and tourism industry desperately hoping that the worst of the Covid-19 pandemic is over, companies are slowly starting to turn their attention to growing again.

For TUI Group that means pressing the accelerator pedal on its new asset-light strategy across its cruise and hotel divisions.

One of the growth drivers is its TUI Blue hotel brand, which it relaunched in 2019.

The resort market is incredibly fragmented and TUI is looking to take advantage of this by growing under this new brand in a similar way to how bigger rivals have expanded in more urban locations.

Speaking on an earnings call with analysts last week, TUI CEO Fritz Joussen said the TUI Blue brand would “develop in sun and beach something like, Hilton or Hyatt”.

The idea being to take “third-party equity to build real-estate” and build out using a franchise model rather than as an owner-operator.

“[I]n summer beach destinations, you don't have a consolidated hotel footprint. It's all family hotels or small companies. And they are lacking marketing. And they are lacking sales capabilities. And that's what we do with TUI Blue,” Joussen said.

At the time of the relaunch in 2019 TUI had 10 Blue hotels now it is approaching “several hundred in number” and it plans to accelerate this growth when leisure travel begins to open up.

“There is enough cash available to build and operate real estate. It's not something we necessarily need to do, on our balance sheet,” Joussen added.

First-Half Earnings

In the first half of its financial year TUI made a pre-tax loss of €1.5 billion, almost double its total for the prior year. Revenue slumped 89% to just €716 million.

After such a bleak year for the leisure travel industry and with restrictions lifting at least in parts of Europe, TUI is confident that it can capitalise on pent-up tourism demand.

“The prospects for early summer 2021 make me optimistic for tourism and for TUI,” Joussen said.

Not everyone agrees with him.

“TUI's expectation for a reopening of Summer '21 leisure travel season is likely to fall flat,” Richard Clarke a senior analyst covering the global hospitality and leisure industry at Bernstein said in a note to investors.

We'll have to wait a few more months to find out who was right.