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Fritz Joussen isn’t a glass half-full person; he prefers it filled to the top.
At least that’s the approach the TUI CEO is taking to steer the tour operator back to recovery, eyeing opportunities most hopefully in southern Europe for now.
Speaking on Wednesday’s 2020 first-half earnings call, he said he’d prefer hotels fully occupied in half of its markets this summer, rather than half-full across all destinations — as right now it’s all about cashflow.
But this new approach comes as the travel giant outlined potential cuts of 8,000 employees as it seeks to take out 30 percent of its overheads.
This bad news came first in the presentation to analysts, as Joussen shared details of a new program to make TUI leaner, less capital intensive and more digital.
“We need to be significantly changing our company, he said. “More lean, more agile, less capital, less investment and much more digital. Therefore we have launched a program to save 30% of overheads, which will affect 8,000 roles.”
The program launched Wednesday, and while he said it would touch all parts of the business, it mostly affects its airline division with 80 percent of overheads coming from this area.
“Not having an airline is not an option. It needs to be more intelligent, it’s an essential facility. But we need to rightsize it,” he said.
It’s looking likely it will be hanging up on its call center operations, too.
“The challenge is reducing people and increasing quality. To give you an example, we have 25 call centers around the world, but with a $100 million cost. It’s not a good reason to assume this is optimal.
“If we wanted to outsource this to a third party, we could save tens of millions per year. We have to be careful with customers, but it shows what kind of potential remains untapped.”
Cuts of this nature were described as “bread and butter” by the CEO, who noted cost reductions were part of an earlier goal to “accelerate the transformation project we had been planning anyway”.
“Oversupply of assets is not good … In the past, we have not as been as strict as we could have been. But now you either fix it immediately or you have difficult times.
“This doesn’t mean we will not be content-centric, we just will not do bricks and mortar. That means we will control our product, brand, distribution, customers. This will stick. Differentiation will stick. We will not invest in bricks. We will be asset-light.
“We are more ruthless in merging cuts in organizations across the group, and for global IT structure,” Joussen added.
TUI’s 2020 first-half number were, as expected, significantly down.
It reported a $882 million loss, down $555 compared to the same period last year. A large part of this was due to a $510 million hit in March from the effects of COVID-19 and ongoing costs relating to the Boeing 737 Max grounding.
On that, Joussen said TUI was in good negotiations with the manufacturer over compensation.
“I’m pretty sure it will get resolved in the not so far future,” he said.
The group has also burned more than $750 million in the past six weeks alone.
However, it has applied for state aid and received approval for bridge loan of €1.8 billion from German state-owned development bank KfW.
Overall, it has liquidity of $2.28 billion and has enough cash to survive the coming months — with more leverage to hand, although it wouldn’t elaborate what exactly.
Commenting on the 3.4 percent investment made on March 11 this year, Joussen said: “Hamed El Chiaty is a good friend and long-lasting business partner. He knows us very well, and the situation very well. He’s one of our longest lasting business partners. He invested [nearly] 5 percent. It’s maybe not a bad time.”
TUI’s share value has dropped 70 percent over the past three months.
Also helping to keep TUI afloat is the sale of Hapag-Lloyd Cruises to its joint venture with Royal Caribbean Cruises. That’s worth $1.3 billion, and will net TUI $650 million in June.
These factors, and the recent KfW loan, shows the equity side is moving, Joussen noted, and further “capital increases are maybe not the most efficient thing to do” in the future.
All Eyes on Europe
Travel companies are now actively looking for areas of recovery, and TUI is no different.
After some green shoots in China, it’s now gearing up for summer by turning to Europe.
“If we open Majorca, Canaries, Greece, Cyprus, I’m happy,” Joussen said. “It’s better to open half the destinations, and fill everything, than have all destinations where it’s still tough. But as soon as we can can start selling this year, the liquidity issue will be less of a problem.”
However, its southern European focus will be on those resorts that have medical facilities close to hand. “You can only mitigate Covid-19,” Joussen said.
Echoing optimism in Germany, the cruise sector is likely to remain buoyant in its home market, but sailings will be subdued in other areas — again due to health and safety fears that have plagued the sector over the past few months.
Meanwhile, Mexico resorts were beginning to open for U.S. tourists, but long-haul flying was “not realistic”.
“We’re not managing the company for profit and loss, we’re managing the company for cash. Customers have enough flexibility to go on vacation when its safe. Flowing capital is the most important thing,” Joussen added.