- Tour operator to sell about 50 adventure travel brands
- TUI will continue to `sharpen' profile on tourism, CEO says
TUI AG, Europe’s largest tour operator, plans to sell a collection of adventure-travel activities, tightening its focus on mass-market holidays to lift profitability.
TUI’s Specialist Group, which generated 1.84 billion euros ($2.1 billion) in revenue and 56.2 million euros in underlying operating profit in fiscal 2015, comprises more than 50 travel brands in Europe, North America and Australia. TUI intends to sell the portfolio, retaining only the Crystal Ski and Thomson Lakes & Mountains businesses, which help fill its U.K. fleet of aircraft in the winter months.
“I’ve always said what is not a core business must either become core or go out,” Chief Executive Officer Fritz Joussen said on a conference call Wednesday. “We conducted a strategic review and decided we are not the best owner for these brands.”
The portfolio shuffling comes amid a volatile environment for travel companies, with airlines cutting ticket prices to stimulate demand after a series of terrorism attacks throughout the region. Bombings by Islamic State and Kurdish militants, as well as tensions with Russia, have particularly undermined tourism in Turkey, a traditional holiday hot spot.
While TUI’s bookings for the important summer season were up 1 percent, trips to Turkey tumbled about 40 percent, the company said. TUI is seeking to adjust by shifting people to Spain, where its Riu hotel chain benefited with occupancy rates rising by 4 percentage points in the first six months of fiscal 2016 and average rates per bed climbing 8 percent. Capacity in the Canary and Balearic Islands are “sold out” for the summer, Joussen said.
TUI shares declined as much as 3.4 percent to 1,032 pence and were trading down 2.1 percent at 9.39 a.m. in London. The stock has fallen 14 percent this year, valuing the company at 6.1 billion pounds ($8.8 billion).
The company’s sales in the quarter ended March 31 rose 1.1 percent to 3.29 billion euros. The seasonal loss, measured as underlying earnings before interest, taxes and amortization before currency fluctuations, narrowed to 131.7 million euros from 176.7 million euros a year ago.
Since being promoted to the CEO role in 2014, Joussen has been shedding or closing units that don’t fit with the company’s plan of filling its own hotels, aircraft and cruise ships, which are geared toward sun-and-sea tourism. The moves have included the sale of the Hotelbeds unit last month, as well as the disposal of online services LateRooms.com and MalaPronta. TUI also reduced its stake in container shipper Hapag-Lloyd AG.
The process to sell the Specialist activities, which span adventure travel to language schools, will start in the fall, the company said. The margin for the unit is equivalent to about 3 percent of sales, compared with about 5 percent for the main tourism business, according to last year’s data. The retained brands represent about one-fifth of the Specialist group’s profit, the CEO said. The company is also seeking a buyer for its French Corsair SA airline, while a planned sale to Groupe Dubreuil collapsed last year.
In addition to trimming its portfolio, TUI is bulking up its mainline business. It agreed to buy the French business of Transat AT Inc. of Canada for an enterprise value of 55 million euros, making TUI the country’s largest tour operator. TUI expects its French operations to eliminate losses this year after failing to reach a target to break even last year.
“Our future is to be a group focused fully on tourism,” Joussen said in a statement. “We will continue to sharpen this profile.”