Congratulations, gentlemen! You are taking the helm of the global market leader in tourism.
Joussen: Well, we have taken the first step. We will now focus on implementation. We expect a lot from the merger. A fully integrated tourism group is a unique opportunity – in terms of our product portfolio, for our customers, for our shareholders and for the professional careers of our 77,000 staff members. The new TUI will almost certainly be one of the most international groups in Europe.
How will your customers benefit from the newly structured group?
Long: Unlike non-integrated tourism providers, we have far more influence on the overall design of the holiday experience, from the search and booking process, to flights and transfers and ultimately to the time people spend at their hotel or on their cruise. At every stage, our customers benefit from consistently high quality.
Joussen: And they profit from an exclusive offering unmatched anywhere else in the market. We intend to build on that in the future as well. We are currently planning to expand our portfolio by 60 new hotels and grow our cruise fleet by 2019. Mein Schiff 4 to Mein Schiff 6 are under construction or have been ordered. And we also have options for additional vessels: Mein Schiff 7 and Mein Schiff 8.
You are going to manage the operators that specialise in activity and experience-based travel separately why is that?
Joussen: We will manage them in a separate business segment within our Group. We always said during the merger negotiations that in future we intend to focus on our core travel operations, and that is the Mainstream business. Specialist tour operators, such as those offering sports or language trips in the United States or adventure holidays in Australia, are often a long way removed from our core business.
Long: We are making those specialist operations accountable to our former CFO at TUI Travel PLC, William Waggott, and they will be run separately. As CFO of the former TUI Travel PLC, he knows the business inside out. These businesses will be managed for growth and value and Will and the management team will determine how best to do that.
What do you have in store to entice your shareholders?
Joussen: … We aren’t trying to entice them, but rather to convince them, win their confidence and justify it through our performance. The new TUI Group will pursue a coherent strategy. Linking the strong tour operator and distribution business at TUI Travel with the premium quality hotel and cruise content at TUI AGwill have two significant advantages. This is a very clear industry rationale.
Long: For one thing we are securing more access to exclusive content for the Mainstream business, i. e. our tour operations, and that will enable us to accelerate our growth. Differentiation is the key factor, especially when competing with the up-and-coming Internet platforms. We are minimising capacity risk for our own hotels and cruise liners through unique product that customers want and can only get from us.
Can you offer a bit more detail?
Joussen: First of all, we intend to make sure more customers are excited by our content. After all, we cover all segments: from luxury cruises with MS Europa via club holidays at Robinson’s, cruises with the Mein Schiff fleet all the way to beach holidays in our hotels, for instance the Riu hotels. We are also planning to grow: new hotels, new cruise ships. Occupancy will be substantially de-risked as we will have direct access to our tour operators, so that our investment risks will be smaller. Our goals are to improve occupancy and develop unique products for our customers. This will place us in a position to achieve customer and turnover growth.
Long: We know from our experience with the club operator Magic Life, which we integrated into TUI Travel, that the integrated approach really does enable us to increase occupancy rates substantially. TUI Travel’s vertically integrated Magic Life clubs have an occupancy level which is 5 percentage points higher than the level in TUI AG’s hotel and resorts portfolio for the financial year 2012/13. And every percentage point increase in capacity potentially means an additional earnings contribution of about six million euros. There is no reason to assume we can’t translate that experience gained with Magic Life to other segments.
Apart from that, what synergies are you expecting to see from the merger?
Joussen: We have identified three factors. First, we can organise the Group far more efficiently. In the future we will not be running two headquarters, nor will we incur the expense of being listed twice over. We estimate the potential savings there to be at least 45 million euros. Secondly, we expect a considerable reduction in our tax charges. Based on the figures for financial year 2012/13, we would have spent in the order of 35 million euros less on tax.
Long: And thirdly we are hoping to save 20 million euros a year by integrating our Inbound Services – which include services in destinations, transfers, excursions and the like – into our Mainstream business.
The compelling industrial logic and the potential synergies beg the question why you didn’t merge the two companies much earlier?
Joussen: Eighteen months ago the merger would not have been possible. At the time TUI Travel paid a dividend of 80 to 90 million euros to Hanover. But in spite of that dividend from London TUI AG made a loss of 120 million euros. Under those circumstances, it would have been hard to convince TUI Travel to join us. So first of all we did our homework, which included tough but inevitable cuts in TUI AG.
What has changed since then?
Joussen: With our strategic programme oneTUI, our focus in the last 18 months has been very clearly on value enhancement and a robust dividend policy, along with rigorous restructuring. We have left no stone unturned, we have cut costs and improved efficiency. We have generated segment transparency, defined targets and kept our promises. Those positive results have enabled us to gradually win back our shareholders’ trust. That was extremely important to me. After all, reliability is a major asset. You have to keep your promises. We have started to pay a dividend again last year, two years earlier than planned. That was another clear signal to the markets, reflecting our determination to achieve our goals.
Now you have the merger, will the oneTUI objectives be obsolete?
Joussen: Not at all. We remain committed to those objectives and we will implement the planned growth with strict cost discipline and a strong cash flow orientation. We also aim to convince our shareholders by offering them an attractive dividend policy.
Long: We expect the merger to affect earnings per share positively as soon as the “new” TUI AG completes its first full financial year. That will be reflected in our dividend policy, which we intend to gear to the progressive dividend policy hitherto pursued by TUI Travel. That means that dividends will more or less shadow earnings growth. If the new Group performs as expected, we hope that for financial years 2014/15 and 2015/16 we will be able to pay out a dividend per share at a rate 10 per cent higher than the underlying earnings per share of the “new” TUI AG.