Tui success put down to matching online migration with customer demand

By Travolution
By Travolution
December 11, 2013 02:56 PM GMT

Tui Travel’s success has come from the way it has carefully judged consumer migration from offline to online, according to a leading City leisure sector analyst.

Europe’s largest travel firm won widespread praise from analysts after announcing a record increase in underlying profits of 20% to £589 million yesterday.

Douglas McNeill, equity analyst at Charles Stanley, said: “They are impressive results. Tui is doing all it promised and more.”

He added Tui appears to have gauged the pace of migration to online well, not going too fast for its customers, many of whom still want to transact or speak to someone offline.

"You have to go as fast as your customer base will let you, not any faster," McNeill said.

The City is taking notice of how Tui has started growing profits in its global accommodation wholesale business, McNeill saying analysts believe there could be big profits to be made in this sector in years to come.

But investors were also reassured by strong forward booking for 2014 and Tui's healthy balance sheet, said McNeill.

"That's where Thomas Cook went wrong a couple of years ago. Tui's balance sheet is really quite strong at the moment; they are well positioned to cope with short-term fluctuations.

"That's not the biggest threat. The biggest threat is getting some of the bigger things wrong, it would be failing to make available a product that the consumers want to buy.

"There is a lot of competition around from dynamic packagers and budget airlines so they have got to make sure they are selling what consumers want to buy.

“Tui is in the kind of position Thomas Cook would like to be in in a few years. It's flying along nicely at cruising altitude."

McNeill said Tui has been performing well for years saying "they have not really put a foot wrong" and have coped very well with disruption in places like Egypt.

He added what has worked in Tui's favour is that a number of surveys are pointing to the fact that consumer confidence is actually higher than many people think given headlines about the cost of living and stagnating wages.

He also said that the core package holiday business was holding up well which was helped by greater distribution efficiency and migration online.

Tui chief executive Peter Long picked out its direct distribution strategy as a key plank of its success, saying it generated £3.7 billion worth of mainstream business online in the year to September 30.

In that period the proportion of business transacted in the online channel had grown by two percentage points to 35%. Long said Tui was a business not just talking about technology but actually implementing it.

The firm’s annual results statement said: “As an online-driven business, we have a focus on the online customer experience.

“During the year, we continued to see the benefits of the investments we have been making in our online platforms.

“We are moving to one core online platform across Mainstream. The UK and Nordic markets have made this transition and are seeing significant improvements in conversion as a result of the redesigned user experience and search functionality that makes it easier for customer to find their perfect holiday experience with us.

“Our other core markets will continue using the same online platform during the course of 2014. The websites in our core markets are now tablet and mobile optimised as our customers increasingly use their tablets and mobile devices to dream, plan, search and book with us.”

Tui operates around 750 retail stores in the UK under the Thomson brand and says that number is likely to reduce over time. However, it has just opened its first hi-tech concept store in the Bluewater shopping centre and will roll out more in other major centres.

This new style store is likely to be introduced into other core markers like Germany, but may not be as hi-tech, the firm said.

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