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TUI AG, Europe’s largest holiday company, said it’s ready to take on the cultural challenges of the Chinese travel market as it expands beyond its Mediterranean comfort zone to spur sales.
Hanover, Germany-based TUI will add hotels in the Maldives, Mauritius and Sri Lanka to attract travelers from China, and is looking at markets more local to the country such as Vietnam and Cambodia, Chief Executive Officer Fritz Joussen said in an interview in London.
China, the world’s No. 1 tourism market, is largely untapped by TUI, which has traditionally focused on Mediterranean holidays. Joussen, who is drawing up his strategy after becoming sole CEO on Feb. 9, said Chinese visitors to Europe are more interested in cities, whereas Asian resorts have more beach-goer appeal.
“We need to think about where the growth is, destination- wise, and also regarding new-source markets,” he said. “The easiest way of capturing the Chinese market is hotels in the Maldives. If you have water bungalows, you are top pick for Chinese honeymooners. They’re supposed to sleep above water at least for one night.”
Joussen, who became co-CEO with Peter Long two years ago before assuming control when the industry veteran stepped down this month, has already turned around TUI’s cruise business and merged the German holding company with it’s U.K.-based tour- operator subsidiary TUI Travel to reduce complexity.
The chief said targeting Chinese clients has unique challenges. Many cannot swim, and others don’t want to get tanned for cultural reasons, so the standard sun-and-beach- resort so popular with northern Europeans is less attractive.
TUI is also keen to invest in locations with 365-day appeal, such as Cape Verde and the Caribbean, where it achieves a 20 percent capital return. Otherwise, hotels can be empty for much of the year. The Western Hemisphere has been favored in the past because there’s little competition from Gulf carriers that dominate Asia routes, letting TUI make money on flights as well as lodging.
“Westbound is a no-brainer,” Joussen said. “Eastbound, we need to be a little more selective.”
TUI plans to add about 60 hotels to its portfolio of 330 within five years. The flexibility of its business model is being tested as terror attacks in Egypt and Turkey create a need to redeploy capacity to locations such as Spain. More customers may book package tours, though, for fear of being stuck abroad alone in an emergency if they travel independently.
TUI is disposing of online hotel-booking arm Hotelbeds.com, which though a leader in its field has a market share of only about 6 percent in a fragmented market, with the sale set to go ahead this year, Joussen said. The unit may be worth more than $1 billion, according to people familiar with the process.
In Europe, TUI will add four cruise ships by 2019, making it the industry No. 1 or No. 2 in the region, he said, with each vessel likely to earn as much as 60 million euros ($67 million) a year after tax.
TUI is also streamlining the operations of its 145-aircraft fleet to form what will essentially be a single airline, though Joussen said that access to seats is more crucial than owning a carrier. Rival Thomas Cook Group said in December it could effectively exit airline operations by teaming with Deutsche Lufthansa AG as the German carrier’s discount arm Eurowings enters long-haul flights.
For younger customers, Joussen plans to refresh the TUI brand to ensure it doesn’t age with its clients, and add more mobile applications.
“Potentially our biggest challenge is online competition,” he said. “It is so many players, with such short innovation cycles. We need to be fast — and paranoid that we are not fast enough.”
–With assistance from Benjamin Katz.
This article was written by Richard Weiss from Bloomberg and was legally licensed through the NewsCred publisher network.