For much of the past decade TUI Group was obsessed with what it called differentiated product: holidays that couldn’t be bought elsewhere.
The idea being that the company wouldn’t lose market share to cheaper rival online travel agencies if the trips could only be bought through a TUI travel agent or via its website. Having its own fleet of 787 Dreamliners as well as own-branded hotels was the major selling point.
For a long time this worked and it’s partly why it won out over rival Thomas Cook, which invested much too late in its own inhouse product. But in the post pandemic world, things are different.
TUI took a hammering, becoming quasi-nationalised and its long-serving CEO decided it was time to move on. At the same time it appears its strategy is subtly changing with the company moving on from the core set of beliefs that have underpinned the business for the last 10 years.
Incoming CEO Sebastian Ebel explained the thinking on a recent conference call with analysts. One area where TUI sees future growth opportunities is in dynamic packaging i.e. allowing customers to build their own holidays by combining accommodation and air travel in a more flexible way.
“We see [the] dynamic package has become more and more important,” Ebel said.
In TUI’s German market during one week at the start of August in, the company made 25% of sales via dynamic packaging and the plan is to role features out into other markers over the next year.
Part of the reason this method of selling holidays is more attractive is that TUI can pass on the financial risk to other parties.
Asked about increasing capacity, Ebel explained how the company now thinks about growth, especially in a post-Thomas Cook world.
“[Y]es, we want to grow, we want to take our fair share also of the Thomas Cook market share, we want to fight. Maybe we have to be even more agile than we had been in the past. But market share itself can be a dangerous thing, because if you increase the capacity too much, and the market is not there, you yield. And there, we have to be really careful. If you do dynamic packaging, you don't care, because the yielding comes from the supplier, and he has to take the burden,” Ebel said
Using more third-party flying capacity, rather than the company’s own airlines, also means taking less of the direct risk from fuel-price rises and other forms of inflation. Something that is easier in Germany where there is more capacity, than, say, in the UK.
TUI has not only broadened its product portfolio through dynamic packaging but also by selling hotels on their own. This isn’t something TUI is known for and should it prove successful it will bring them into more direct competition with the likes of Expedia and Boooking.com.
“TUI has not been recognized as someone you would have top of the mind when you book a hotel only. We … now have access direct content -- direct access to the content supplier like hotels, and we bring it directly to the customers through web, through app and, of course, also through retail,” Ebel said.
Ebel, the current chief financial officer, did stress that TUI wasn’t abandoning its differentiated product strategy and that having its one exclusive product was still a USP. Even so its hard not to conclude that Tui is a very different company to the one that went into the pandemic only a couple of years ago. Owning its own hotels used to be a key pillar but a large chunk have now been sold off and like the big hotel brands TUI talks about an asset-light strategy.
“We are making huge steps forward from a company who five years ago sold traditional package tickets,” Ebel said.