Unpacking TUI’s New Hotel Strategy

Global tourism giant TUI over the last few years has placed a greater emphasis on its own exclusive content. In some ways, this has helped insulate it from the factors that led to the demise of Thomas Cook, but it still has a ways to go.

In its most recent earnings update, it floated the idea that it could become the Amadeus for independent hotels, leveraging its digital-only distribution platform GDN-OTA.

The idea behind the online venture is to expand TUI outside of its core markets, like the United Kingdom and Germany, into countries like China, India, and Brazil. Instead of using physical stores, tour operators, and hotels it will be asset-light.

"As we expand our hotel and cruise portfolio, we are also exposed to greater capacity risk — we can currently provide around 100 million bed nights a year, and those beds need filling," said Tarik Evers, TUI's chief financial officer for new markets and IT in a recent interview.

Originally the plan had been to use this as a funnel for boosting occupancy in TUI's 411 owned-brand hotels, but in a recent earnings update the company unveiled an ambitious plan to target independent properties. It's a bold claim, but can it really work?

As analysts at investment bank Morgan Stanley put in a hypothetical question to TUI: "What is the company's view on how a hotel company can offer a better digital service to independent competitor hotels than a technology company?"

TUI's Hotel Strategy

TUI announced earlier this year that it wanted its TUI Blue brand to become the “world’s largest leisure hotel brand within the next few years.”

From next summer, TUI will combine its hotel brands TUI Blue, TUI Sensimar, and TUI Family Life under the TUI Blue flagship brand. TUI Blue will move from 10 to 100 hotels.

TUI claims to have had some success with its GDN-OTA platform already among its own hotels and now intends to offer it to independent properties.

TUI wants to use its own tech solutions to win support. The idea is that TUI’s IT capabilities make it possible for hoteliers to extract higher margins per room, compared to what they might be able to get out of a conventional online travel agency.

The secret sauce is attribute-based booking. Now other global hotel chains are already working on this — including InterContinental Hotels Group, ironically with Amadeus — so it’s not like TUI is the only show in town. But combining this with TUI’s reach makes for a pretty enticing proposition, especially for leisure beach and sun properties.

“If they want to have category rooms with baby (monitoring) phone coverage from the restaurant, they can do it because in our systems it’s not categories, it’s like what Amadeus does for the airlines. Each and every seat in an airline or each and every room in the hotel can be marketed to a different price, and that is something that gives the power of differentiation back to the hotelier,” TUI CEO Fritz Joussen said on a media call after the recent release of the firm’s full-year results.

Joussen argued that this means that hotels in the TUI ecosystem can make higher margins on a per-room-night basis. “It is an enormous upside potential,” he said.

A Distraction?

Not everyone has met TUI’s quest to conquer new markets through its GDN-OTA with approval.

"Clearly, the expansion into cruises and hotels has been a success, however, that was taking advantage of industries where TUI was entrenched. The GDN-OTA move seems late to the party in terms of competitive positioning, and we struggle to see what edge TUI will have," analysts at broker Berenberg said in a recent note to investors.

Instead of looking jealously at exciting new markets, TUI might be better off trying to fix its tour operator division, which continues to struggle.

Operating profit (EBITA) in the division fell 88 percent to $54 million (€49 million), with TUI blaming the grounding of the 737 Max, Brexit uncertainty, airline overcapacity in Europe, and changing customer booking behavior.