TUI Group‘s ongoing digital transformation has created the infrastructure for “destination services” – as in tours, activities and transfers – to become a designated strategic growth area for the business.
The news came as part of its 2018 Q1s released today. The importance of its destination services announcement is made clear in the presentation to analysts, which opens with slides about the present and future of this business line before talking about its strong Q1 performance.
Destination services is already a fairly big part of TUI – although its standalone financial performance has been absorbed into “other tourism”. From now on it will be given the same autonomy in the results as the “cruises” and “hotels” business units and will be reported as part of the new “holiday experiences”.
TUI has prepared the groundwork by revealing destination services’ contribution to its 2017 FY results. In the year to end-Sept17, external revenues came in at just over €200m with EBITA margins of 17%.
The volumes are also revealed – TUI arranges 24 million transfers a year and 4.6 million excursions. It operates in 115 mainly sun and beach destinations, has 100 vehicles and employs some 6,500 people.
Growing from a high base is something TUI has managed over the years, and the growth in destination services is made possible by its commitment to and investment in a global CRM platform.
CEO Fritz Joussen said:
We see great potential to grow through the strength and comprehensive presence of the TUI brand. We know our customers. Our customers know us, and they trust the TUI brand. This should help us develop more and better service offerings….There is a wide variety of offerings, both before, during and after the journey. Modern CRM systems will be used to develop tailored products for the customers and generate additional turnover.
While tapping its existing customer base is the obvious way to grow the business, the presentation also talks about “third party customers” as a way to lift volumes and revenues. The ability to grow the inventory by adding more sun and beach product, entering the city break market and targetting Asia are also mentioned. The product itself will be expanded with more “activities”, which TUI appears to differentiate from excursions, and multi-day tours.
How, exactly, this will pan out in practice remains to be seen. TUI does like to have its own and/or exclusive inventory, at least in its core markets, but it is unlikely that it would want to contract directly with providers in the same way as it contracted hotels back in the day when it had thousands of high street travel agents, hundreds of brands and dozens of fragmented IT systems.
Its TUI 2022 initiative comes into play here. Its strategy to enter new source markets by leveraging its global platform to package third party flights with its own and aggregated hotels could be extended to add destination services into the booking flow.
There are more than enough tours and activities providers out there with APIs for whom TUI Group and its 20 million customers a year, and counting, would make a significant distribution partner.