How Ryanair’s deal with TUI will change the travel landscape

The European holiday distribution landscape has taken an intriguing turn in recent months after low-cost airline Ryanair agreed a number of deals with tour operators and online travel agencies signalling a thawing in tensions between these two groups.

Having previously had agreements with online travel agents (OTAs) loveholidays and Kiwi to sell their flights as part of a dynamic package, it announced new deals first with tour operator TUI and then UK-based OTA On the Beach.

While the latter deal has apparently put paid to the ongoing legal battle between the low cost carrier (LCC) and On the Beach, which had been previously selling its flights without an agreement, it is the deal with airline-owning TUI that is of most interest.

In the official announcement marking the deal, TUI Group chief strategy officer and chief executive officer holiday experiences Peter Kruger said the agreement would allow TUI to further digitalise its business, expand the range of TUI dynamically packaged holidays and lead to further growth through more products and guests.

TUI Group CEO markets and airlines David Schelp added: “The agreement we have now reached will create more travel options for our guests than ever before.”

While TUI has a fleet of 130 aircraft, rising to 175 during the peak season when more are leased, speaking to Hospitality Investor TUI spokesperson Aage Duenhaupt agreed the size of Ryanair, which will have 600 aircraft available for summer 2024, was key to the deal being struck.

He said: “It gives the customer more choice to have either more flight options or to have access to smaller holiday destinations and departures from smaller source market take-off points.”

The flights will be available for customers to create their own packages, with all arrangements protected under TUI’s Atol licence where applicable.

Duenhaupt said it is hoped that TUI’s First Choice brand will be the main beneficiary of the new deal as it targets younger customers who are not only used to flying with Ryanair but are also keen to tailor their holidays around their own needs as opposed to buying a standard package.

And he added the additional opportunities afforded by the deal will allow TUI to focus on its core routes and destinations.

Sven Carlson Aviation Consulting managing director Carl Denton said that the deal would allow TUI to focus on destinations served by fewer airlines, so giving them increased exclusivity on featured destinations.

It will also allow them to pull their own flights out of routes already heavily served by LCCs and which have led to prices being driven down and limited margins.

However, anyone expecting the deal to lead to a rash of new products offered by TUI is likely to be disappointed.

Denton added: “This is all to do with summer beach leisure travel as the volumes they sell on anything other than beach are minimal.

“They may decide to do more city breaks but this is a small part of TUI’s business – the deal is really about getting capacity to the Canary Islands, Spain and Portugal.”

Finally, Denton said the deal would allow TUI to grow its dynamic packaging offering, so driving volumes and putting it in a better position to compete with Jet2 in the UK and rival OTAs where dynamic packaging has long been the norm.

If there is to be an increase in city breaks, Sunvil chairman and former chairman of UK travel associations ABTA and AITO Noel Josephides argues that eastern Europe will benefit most as Ryanair’s strong presence in the region opens up new opportunities for TUI.

He said: “It does give TUI access to new destinations. Ryanair flies to places a normal tour operator wouldn’t consider and certainly that would be quite a plus for TUI.”

 As for Ryanair, its director of marketing, communications and digital Dara Brady said the deal would mean TUI customers can now book flights, seats and bags with full transparency of pricing and which they will be able to see in their myRyanair accounts, while receiving information about their flight directly from the airline.

He added: “This deal separates TUI from the OTA pirates who continue to dupe and scam customers by unlawfully screen scraping Ryanair’s website and miss-selling our flights with egregious hidden mark ups and overcharges.”

However, Denton believes the deal was also driven by Ryanair’s need to keep up with its competition, particularly easyJet which in January highlighted the success of its own tour operation easyJet Holidays.

In a trading update for its first quarter ending 31 December, 2023, easyJet revealed its holidays arm had made a £30 million profit, double the £14 million generated in Q1 in the previous year, following a 48% increase in customers.

Denton said: “Without the tour operation, Ryanair are losing ground. EasyJet, Jet2 and TUI are all selling their own aviation through packages and Ryanair have no outlet.

“Ryanair benefits from getting access to the TUI customer bank and that changes the customer profile. It gives them access to the market they otherwise wouldn’t have.”

Grant agreed that easyJet’s successful tour operation would have played a part in persuading Ryanair to sign the deal and added it was part of a natural evolution in the travel market, where the boundaries between airlines and tour operators have become increasingly blurred as they seek to maximise profits.

He said: “You could argue this reflects the final maturing of Ryanair by accepting their place in the whole travel eco system.”

Josephides added: “EasyJet and Jet2 are selling very hard and Ryanair hasn’t got a tour operation and this is a halfway house. The airline needs the bums on seats and the tour operator needs an airline that isn’t already tied to another tour operator. It’s a good match.”

The deal ties together two of the biggest names in travel in Europe and the entire industry is sure to be watching this summer to see how it pans out.

And there is one sure way of knowing if Ryanair judges the two new deals to be a success, just as it ramps up capacity with extra aircraft on a popular route you can expect new similar deals to be announced with increasing frequency.