European travel giant TUI Group wants to play an even bigger role in the growing tours and activities market after completing two big acquisitions in 2018 and seeing turnover in the sector increase 50 percent.
TUI considers itself to be one of the leaders within the sector and now offers around six million tours and activities a year, 25 million transfers, in 49 countries with a workforce of 9,000 people.
Expanding in the sector will in part drive TUI’s plans for 10 percent profit growth per year in 2019 and 2020. It is central to the company’s overall tourism strategy.
At a global level, revenue could hit $183 billion by 2020 and in in its most recent financial year TUI saw its tours and activities program generate $347 million (€303.5 million) – up from $231 million (€202.5 million) in the prior year
“We believe it will be in future a very important market, and we are already a very big player in the market,” TUI CEO Fritz Joussen told analysts on an earnings call in December.
TUI’s two acquisitions this year served two slightly different purposes. Buying Hotelbeds’ destination services division was all about expanding the product range.
“We now are able to offer a lot more products than we used to…because before we were quite narrow in our little safe portfolio,” David Schelp, managing director of TUI Destination Experiences, told Skift.
What this means is the ability to offer multi-day tours as well as an enlarged cruise handling business.
Musement on the other hand gave TUI the “missing piece” that it didn’t have before.
“Those capabilities and the technological platform you need in order to source, produce, and distribute digitally. It gives us access to a team of digital experts,” Schelp said.
Prior to the acquisition, TUI had been much stronger in sun and beach destinations, but Musement is stronger in cities. TUI is currently busy replacing its existing tours and activities software with Musement’s.
A Known Unknown
TUI’s expansion marks another big change in a market that is becoming increasingly vertical. TUI, after all, sells vacations in its own stores and flies customers to its own hotels using its own aircraft. If you think about it, it has also already been in the tours and activities game for a long time in that like other tour operators, it used in-resort reps to sell things like tickets to its customers.
“They always had tours and activities. iI’s just they’ve not seen it as the same kind of business as the digital tours and activities distributors did that you see nowadays,” said Alex Bainbridge, former CEO and founder of tour distribution company TourCMS.
Thanks to its new acquisitions and better-defined strategy, TUI now has the ability to sell its customers a broader range of tours, activities and attractions.
“The real beauty of that, if you take a look at the overall tours and activities market, one of the challenges is customer acquisition cost is extremely high, compared to the margin you make. If you think of it as a zero customer acquisition cost game for us, because the customers have already been acquired,” said Schelp.
“All of a sudden, two of the big difficulties in this market for us are easier to over come, because we don’t spend anything on customer acquisition for this group and average margin is also better.”
A couple of weeks ago, TUI went live in its UK retail stores with a version of the Musement platform and the idea is to roll this out to its other source markets across Europe.
“Obviously we’re selling a lot of our product. We’re selling a lot theme park product, a Disney product, a Universal product. But we’re also starting to see a lot of the city product that we didn’t have before actually being sold to the TUI guests, said Schlep.
As well as selling more to its own customers TUI sees a couple of other growth areas. One is signing deals with companies who will then use the TUI platform to service their own customers.
Musement already had a deal with Google, through Google Trips, and there are also opportunities with airlines hotel chains and cruise lines.
“I’m starting to speak to some companies and hopefully we can announce a couple of deals in that space in the not too distant future,” Schlep said.
The third opportunity comes through selling direct to consumer and TUI hasn’t yet decided whether it will do this under the Musement name, its own or some other.
The Bigger Picture
Tours and activities is a very fragmented market with hundreds of thousands of suppliers all across the world, many of which are offline. The challenge for companies like TUI is to connect to as many of them as possible and bring them online. The market has plenty of room to grow and that’s what has persuaded so many companies — and so many investors — to get involved. Platforms like GetYourGuide and Klook have raised millions of dollars.
Speaking at Skift Forum Europe in 2017, GetYourGuide co-founder and Chief Operating Officer Tao Tao, said the industry was having its “moment in the sun.”
TUI’s biggest competitors are perhaps the generalist online travel agencies, such as Expedia Group, Booking Holdings, and Airbnb.
“While the volume of attractions and other travel-related services is still very small compared to the size of our accommodation business, we are happy to report that the foundational blocks are being laid and we believe that in the long-term, providing a frictionless booking and payment experience in this area will be a competitive advantage,” said Booking CEO Glenn Fogel.
Booking shored up its own position in the market through the purchase of tech provider FareHarbor in April. And TripAdvisor, already big player thanks to its acquisition of Viator in 2014, bought Bokun.
“The big OTAs are going to be there. They are strong under customer facing side of things. For me, the question is can they get the supplier relationship digitized and what are they going to do about the delivery piece,” said Schelp.