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TUI Group said earlier this year that it wanted to grow its presence in the in-destination market and it hasn’t taken the company long to make good on that promise.
The Hanover-based firm is paying Hotelbeds Group — a business TUI used to own — $136 million (€110 million) for its destination management unit.
The division will become part of its Spanish subsidiary, TUI Destination Services, while Hotelbeds will concentrate on its wholesale accommodations businesses.
In addition to excursions and transfers, tours and activities, the division also offers handling for cruise companies in the ports. The latter will become even more important for TUI over the coming years as it adds to its cruise fleet.
“The global market for these services is growing. Four factors put TUI in an extremely good starting position: our strong international brand, the trust of 20 million customers, the trust of the destination countries through decades of presence and, most importantly, our world-class IT and CRM systems, in which we have invested in recent years,” said TUI CEO Fritz Joussen.
The acquisition plays into TUI’s strategy of owning more of the overall holiday experience. It already has travel agency shops, airlines, hotels and cruise ships, and now it wants to make better use of the time between travel booking and the beginning of the trip, to target customers with relevant offers for their vacations.
A Changing Sector
The tours, activities, and transfers market remains fragmented and is one of the last remaining “offline” travel markets. TUI is one of a number of players aiming to consolidate and connect up the segment.
“TUI highlights this segment as one of its three key growth opportunities as it looks to develop a broad range of unique content, differentiating TUI from peers,” said Richard Clarke, a senior analyst at Bernstein in a note to investors.
“Management quantify this market at €139 billion per annum, growing at an attractive 7 percent and highly fragmented. It appears others share this view, reflected by Marriott’s recent extension into this space through acquisition of tours-and-activities metasearch platform, PlacePass last year,” Clarke wrote.
TUI sold Hotelbeds Group to a consortium of private equity firms, Cinven Capital Management and the Canada Pension Plan Investment Board, for $1.3 billion in 2016.
“Today’s sale represents yet another important milestone for our Group since becoming an independent business in September 2016. This simplified structure will enable us to focus fully on our bedbank core, where following our recent acquisitions of Tourico Holidays and GTA we are already a market-leading business innovating the hotel and ancillaries distribution chain via our best-in-class B2B technology platform,” said Joan Vilà, executive chairman of Hotelbeds Group.
Why Buy It Back?
It might seem a bit odd that TUI is effectively buying back a business it sold less than two years ago but there are a couple of good reasons.
Firstly, at the time of the sale it would have been difficult to separate the destination management portion of the business from the accommodation part and TUI wouldn’t have wanted to scare off potential bidders.
“The business was closely integrated in the bed bank business at the time, so that a carve-out would have been elaborate and complex,” a spokesperson told Skift.
“Moreover, Hotelbeds Group has changed significantly in the meantime, as the company has significantly strengthened its bed bank business over the past few months in particular through takeovers. Therefore, Destination Management is no longer one of Hotelbeds’ core businesses and we have had the opportunity to acquire it.”
The other factor was probably price. TUI sold Hotelbeds for $1.3 billion and only spent $136 million buying back the portion of the business it wanted. To the company’s management, this will seem like a win-win situation. The same is likely true for Hotelbeds, which can now concentrate on its accommodation offering.